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Deutsche Bank AG (NYSE:DB)
Q3 2019 Earnings Call
Nov 8, 2019, 3:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I am Amy, your Chorus Call operator. Welcome and thank you for joining the Q3 2019 Analyst Call of Deutsche Bank. Throughout today's recorded part -- presentation, all participants will be in a listen-only mode.

[Operator Instructions]

I would now like to turn the conference over to James Rivett, Head of Investor Relations. Please go ahead.

James Rivett -- Head of Investor Relations

Thank you, Amy, and good afternoon or good morning and thank you all for joining us today. As usual on our call, our CEO, Christian Sewing will speak first; and then James von Moltke, our CFO, will take you through the rest of the earnings presentation which is available for download at db.com. After the presentation, we'll obviously be happy to take your questions.But before we get started, let me just remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. I therefore ask you to take notice of the precautionary warning at the end of our materials.

With that, let me hand over to Christian.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Thank you, James and good afternoon everyone and welcome from me. In July, we spoke to you about our strategy to radically transform our Bank by 2022. Today, we can tell you, we are on track, the trends in the core bank, the performance in the Capital Release Unit, headcount, costs and capital are all running in line with or better than we planned.The longer-term story will be a key part of what we discussed with you at the Investor Deep Dive on the 10th of December, I hope as many of you can join us for that.

Today, I will focus on the progress we made in the quarter toward our four objectives for 2019, starting on Slide one. This management team is absolutely focused on execution. We are delivering on our near-term objectives, which sets us up to deliver on our long-term goals. First: we told you we would continue to manage our balance sheet conservatively. This is our non-negotiable starting point and our initial results are encouraging. Our common equity Tier 1 ratio was stable in the quarter and at the high-end of our international peer group.

Second, we said we would refocus our strategy on four core businesses which has strong positions in attractive markets and which are all profitable. We also said we would grow revenues in our less market-sensitive areas and here, as you will see in a moment, the underlying trends are encouraging with positive drivers.

Third, our Capital Release Unit is up and running and delivering. We made significant progress in reducing risk-weighted assets and leverage exposure in the quarter. We are confident of hitting our objectives for 2019 and beyond.

And finally, we continued our work to reduce costs. We have reduced the adjusted costs year-on-year, excluding the bank levy and transformation charges for the seventh quarter in a row. We are on track to hit our full-year 2019 target.

Let me now give you some detail on each of these points, starting on Slide two. We have been managing our balance sheet conservatively and will keep doing so. In the first quarter since launching our strategy, we are fully on track. Our common equity Tier 1 ratio was 13.4%, unchanged from last quarter. This performance reflects the prudent way we manage our capital. It also shows our determination to fund our transformation from our existing resources.

We are also focused on maintaining strong credit quality. Provisions for credit losses are 15 basis points of loans year-to-date, a low level, both historically and relative to peers. That reflects our conservative underwriting standards, our strong risk management and the generally low risk portfolios.Our loan to deposit ratio was 75 -- 74%, reflecting a strong and stable funding base supporting our high-quality and growing loan portfolio.

And finally, our liquidity position was strong. Our liquidity coverage ratio of 139% gives us a surplus of EUR59 billion over required levels. Let me emphasize again that a robust and solid balance sheet. What is the foundation for our restructuring. This balance sheet quality will not change.

Let me now look at how our business have performed on Slide three.

As I said, we are focused on stabilizing and then growing revenues. Overall, revenues in our core business were down 3% excluding specific items. That reflects multiple headwinds: A slowing global economy; A technical recession in Germany; And an even tougher interest rate environment. And of course, the performance also reflects some impact from the fundamental transformation that we have launched in July.

This quarter we need to look beneath the headline results.

In the private bank, we offset most of the interest rate headwinds with solid growth in Wealth Management, and our International business. We grew volumes, including 4% loan growth while fee income rose reflecting the 3% increase in assets under management year-on-year. Credit quality is robust and margins on average increased.

In the Corporate Bank, we grew revenue 6% with growth across our Global Transaction Banking and Commercial Bank units. That included 7% loan growth and in Asset Management, DWS showed its third sequential quarter of net inflows. Revenues were flat excluding the negative impact of lower interest rates on guarantees in certain retirement products.

The revenues were marginally up year-on-year in total across our more controllable, less market-sensitive businesses, i.e. of the private bank, the Corporate Bank and Asset Management, these businesses accounted for over 70% of our core bank revenues.

Investment Bank revenues declined by 3% excluding specific items. We see this as a satisfactory result in particular, given the uncertainties around our strategy at the start of the quarter.

Our transformation did have an impact on our performance in the Investment Bank, although the trends were in line with our internal targets and we believe that we are starting to -- that we are starting to put these issues of uncertainty now behind us. Within the Investment Bank, we have some areas of real strengths. Origination & Advisory grew strongly with increased revenues in both debt origination and M&A against the broader market that was flat. Revenues also grew in our market leading financing business. We continue to deploy balance sheet in our core lending franchises and benefited from strong capital markets activity, most notably in asset-backed securities and commercial real estate.

And FX revenues were resilient in the phase of further declines and market volatility. So across our stable business, and the majority of our investment bank, revenues either grew or stable. In our view, this is a good result given the magnitude of changes we announced. The decline in revenues came from rates and emerging markets debt which James will discuss later. The new management teams in both businesses have already taken action to stabilize the franchises. We are pleased with the early momentum that both showed at the end of the third quarter. We are committed to maintaining a robust broad based rates and emerging market platform.

Turning now to the progress we have made in deleveraging the Capital Release Unit on Slide four. Our target is to reduce risk-weighted assets in the Capital Release Unit by EUR20 billion in 2019 to EUR52 billion. We have just filled -- we have just EUR4 billion left to do in the fourth quarter to reach that target. So we have already largely reached our goal. We reduced leverage exposure by EUR73 billion in the quarter and by over EUR100 billion year-to-date. We are confident in reaching our full year target of reducing leverage exposure in the Capital Release Unit to around EUR120 billion.

Our leverage target assumes that we closed the transfer unit with BNP Paribas for Prime Finance and Electronic Equities in the fourth quarter. At the end of the third quarter, leverage exposure related to this transfer was around EUR40 billion. Roughly half of this amount should reduce soon after the closing of the agreement. The remainder related to client balances will transition over time.

Now let me turn to our progress on cost reduction on Slide five. Stripping out transformation related charges which James will discuss in a moment, our adjusted costs were EUR5.2 billion in the quarter, excluding these charges and bank levies, we recorded our seventh consecutive quarter of year-on-year reductions and again, we are in-line with our plan and guidance we gave you last time, compared to the first quarter of 2018, we have reduced our quarterly adjusted costs by around EUR450 million or EUR1.8 billion on an annualized basis. This quarter, we showed continued cost discipline with reductions in every cost category except for planned investments in technology. The reductions which we have achieved in the first nine months put us on track to deliver our full year target of EUR21.5 billion.

We expect to reach this target despite absorbing almost EUR300 million of FX translation headwinds this year. And we remain committed to our longer-term target of a cost base of EUR17 billion.

Before I hand over to James, a word about our strategic execution on Slide six. The new leadership team has wasted no time in delivering on a series of key milestones since July. In the past 100 days, we have executed on key changes in governance, organization and financial reporting. We aligned our non-financial risk compliance and anti-financial crime into a single function. This is part of our wider commitment to strong controls. We've also redefined our technology strategy to further support our transformation and our cost reduction targets.

Group headcount is below 90,000 internal employees for the first time since the acquisition of Postbank in 2010. The Capital Release Unit is up and delivering. We have completed major steps to enable us to exit from our equity and sales trading operations. We have also begun the shutdown of applications and related infrastructure across cash and derivatives.

In our core business, we have also made progress. In our refocused equity origination franchise, the initial evidence is encouraging. We have priced 27 transactions with a further 28 in the pipeline since announcing our strategy in July. These 55 mandates support our view that our equity capital markets business can develop well without secondary equity Sales and Trading capabilities. We'll also see greater collaboration across our businesses. A couple of examples. FX4Cash, our online real-time FX hedging tool developed in partnership between the corporate bank and the investment bank at its best revenue quarter ever.

The good growth we showed in Wealth Management was in part driven by the performance of our family office and institutional wealth initiatives which are run in partnership with the investment bank. To sum it up, we are delivering on our targets and we feel comfortable that we have laid the foundations for a successful restructuring and improved business performance. We are managing our capital and balance sheet conservatively, we are stabilizing revenues to position ourselves for growth, our Capital Release Unit is deleveraging on schedule and we are keeping up the pace of cost reduction. In the first quarter of our transformation and with the uncertainty that comes with such a major restructuring, we feel good about the way our franchise is performing. Clients have clearly embraced our new business model. We are gaining share in origination advisory, we are growing loans and we are generating net inflows in assets under management.

With that, let me hand over to James.

James von Moltke -- Chief Financial Officer

Thank you, Christian, and good afternoon from me. I'll start with a summary of our Group financial performance on Slide seven. Adjusting for a specific items detailed on Slide 23 of the presentation, revenues were EUR5.4 billion in the quarter, down 12% year-on-year, the decline was driven by lower revenues in the capital release unit and corporate and other. Non-interest expenses were EUR5.8 billion. This includes EUR234 million of restructuring and severance and just under EUR200 million of transformation related charges reported within our adjusted costs.

Transformation charges in the quarter consisted primarily of software impairments as we implement our technology transformation to help reduce costs in future periods. As we laid out in July, these transformation charges will be a part of our results for several quarters. Stripping out these charges, adjusted costs were EUR5.2 billion, down 4% year-on-year. Provision for credit losses of EUR175 million remained within our target range and included a benefit of EUR104 million from the net effect of annual updates to the forward-looking indicator element of our expected credit-loss model and the regular quarterly update to forward-looking macroeconomic variables. Excluding these benefits, provisions for credit losses increased, reflecting lower recoveries and higher provisions taken on defaulted and impaired exposures.

Our net loss was EUR832 million, the negative tax rate includes EUR380 million of deferred tax asset valuation adjustments taken during the quarter that we anticipated and communicated to you when we launched our strategy in July. Tangible book value per share was EUR24.36, a 1% decline from the second quarter. Let us focus on results for our core bank in the quarter on Slide eight. The Core Bank, which excludes the Capital Release Unit was profitable in the quarter on a pre-tax basis, with positive results in all four core businesses. Core bank pre-tax profit of EUR353 million included EUR315 million of restructuring and severance, transformation related charges and a negative impact from specific revenue items, all of which are detailed in the appendix.

Core bank revenues were EUR5.6 billion, excluding specific items down 3% with around half of the decline coming from corporate and other. Adjusted costs declined by 2% excluding transformation charges. Both risk-weighted assets and leverage exposure increased in the Core bank as we grew business volumes, including 9% loan growth year-on-year in selected core client segments.

Turning to adjusted costs on Slide nine, we reduced adjusted costs by EUR296 million or 5% year-on-year, excluding the impact of foreign exchange translation and EUR186 million of transformation charges. Compensation and benefits expenses declined, reflecting the reductions in internal workforce of around 4,750 we have made in the last twelve-months as well as an alignment of some of our benefits policies globally. Professional service fees declined by 5% as we further improve the efficiency of our external spend. Other costs declined, reflecting reductions across a number of areas including occupancy and were supported by recoveries. We kept our IT costs broadly stable and within our target range, as we continue our technology investment program.

Turning now to Capital and Leverage on Slide 10. Let me underline what Christian said, we are committed to maintaining our capital strength through our strategic transformation and we're encouraged by these initial results. In the quarter, our de-risking efforts generated almost 45 basis points of capital including approximately 20 basis points from lower operational risk RWA which we realized one quarter earlier than planned. Excluding operational risk, de-risking in the Capital Release Unit generated almost 25 basis points of capital offset by around 16 [Phonetic] basis points of growth in the core bank and about 5 basis points of regulatory headwinds associated with the targeted review of internal models we have discussed previously.

Together with the negative impact of our transformation charges on earnings, our Common Equity Tier 1 ratio was stable at 13.4%. We reaffirm our target to manage our Common Equity Tier 1 ratio around 13% in the fourth quarter with the decline driven by multiple factors including transformation charges and updates to pension liabilities, including tax effects. Our fully loaded leverage ratio was stable at 3.9% in the quarter despite a headwind from foreign exchange translation.

On an exchange rate neutral basis, we reduced leverage exposure by EUR39 billion including EUR77 billion of de-leveraging in the Capital Release Unit. In the fourth quarter, we expect our leverage ratio to be 4% rising to 4.5% by the end of 2020. Before going through the details of our divisional performance, a few words on the recent resegmentation of our financial results.

Our third quarter results reflect the finalization of our new corporate structure and our new perimeter that we laid out in our restated financial disclosures in early October. Additionally, in the third quarter, we've introduced a new funds transfer pricing methodology and made changes to the way we allocate the costs of internal services. These charges have no impact on the Group financials or our targets, but do impact some of the current quarter business unit variances and performance and, we will further refine our cost allocations with the introduction of driver-based cost management tools in the first quarter of 2020. These changes are part of the series of investments in our management tools that we have discussed previously. These investments will help us drive better and faster decision-making, better accountability, and improved resource allocation.

Turning to the results of our corporate bank on Slide 12, the corporate bank is growing profitable and made good progress toward its strategic objectives this quarter. Revenues grew by 6% year-over-year, reflecting good business momentum as we grew loans by 7%. The loan growth was encouraging as it came in our targeted growth areas including Asia and in our German commercial client business. Revenues, benefited from a more normalized level of episodic items in our Global Transaction Banking business that we've discussed in previous results as well as from FX translation. Excluding these items, corporate bank revenues grew by around 2% on an underlying basis.

Adjusted costs excluding transformation charges were EUR973 million flat to the prior quarter, but up substantially versus the prior year. The increase reflects higher spending on controls and technology as well as the impact of higher internal service cost allocations, reflecting some of the changes I mentioned earlier. Provisions for loan losses were EUR76 million in the quarter, reflecting the benefit of the recalibration and input update I mentioned earlier, as well as a few specific items. As a result, our corporate bank generated EUR254 million of pre-tax profit and an 8% post-tax return on tangible equity.

A few words on corporate bank revenues in more detail on Slide 13. We grew revenues in our Global Transaction Banking business by 8%. Cash Management revenues increased slightly and benefited from balance sheet management initiatives, including a shift from Euro to US dollar deposits and adjustments to our deposit pricing strategy. We grew corporate cash management transaction volumes by over 12% globally with the fastest growth in Asia-Pacific. Trade finance revenues increased supported by increased lending activities in Germany and Asia.

Trust and Agency services revenues also rose, mainly from higher corporate trust revenues in the US as well as a solid performance in depositary receipts. Security services revenues declined in line with our expectations after our exit from equity Sales and Trading. In Commercial Banking in Germany, revenues rose by 1% driven by loan growth of EUR4 billion, which helped offset the pressure of low or negative interest rates.

With that, a few words on the Investment Bank on Slide 14. Our refocused investment bank, includes our origination and advisory businesses and our fixed income and currencies sales and trading operations. We set three objectives for our investment bank; stabilize revenues, reallocate resources and reduce costs and the management team made progress on all three this quarter. Revenues declined by 3% excluding DVA and the valuation of a specific investment. The underlying trend however is more encouraging. The vast majority of investment banking revenues were in businesses which were either stable or grew in the quarter. The issues were highly localized and partly reflect specific factors that we're addressing.

We continue to reallocate assets to our more stable, market leading financing businesses in the investment bank as we work to improve returns and the stability of revenues within the business. We grew loans in the division by EUR4 billion in the quarter and EUR13 billion year-on-year predominantly in our asset-backed securities and commercial real estate businesses. Finally, we broadly offset the lower revenues with reductions in adjusted costs, which declined by 3% excluding transformation charges. The decline partly reflects around 500 in-voluntary leavers during the quarter, the run rate effect of strategic actions taken in recent periods and lower internal service cost allocations.

Turning to the Investment Bank's revenue performance by business on Slide 15. Revenues in fixed income sales and trading were EUR1.2 billion in the quarter. In financing, our biggest business within FIC, revenues grew, reflecting increased client activity and the benefit of loan growth, I mentioned earlier.

In flow credit, revenues rose year-on-year, as we started to benefit from investments in previous periods, while distressed debt trading revenues declined from a strong prior-year quarter and reflecting the episodic nature of that business. Credit also benefit from lower funding cost allocations due to changes in our funds transfer pricing methodology I discussed earlier. Revenues from foreign exchange trading declined slightly reflecting low levels of market volatility. Foreign exchange revenues were supported by the strength of our corporate related flows, which reflects the partnership between our Corporate and Investment Banks.

In contrast, emerging markets debt and rates saw revenue declines, year-on-year. In rates, results were impacted by our business restructuring and by the loss of EUR37 million on a specific investment as detailed on Slide 23 of the appendix. Additionally, we faced challenges earlier in the quarter in a couple of specific areas of our European business, as we worked through some leadership changes and suffered some losses.

Performance later in September was encouraging with good pipeline execution in Europe, while the US performed solidly across the quarter. In EM debt, we were affected by the challenging markets in Latin America and in Argentina in particular and suffered some trading losses as a result. We believe the performance has now stabilized under new leadership with improved results in September.

As Christian said, we are committed to maintaining robust and broad-based rates and emerging markets franchises and have taken specific actions to restructure these businesses. We are encouraged by the early momentum we see. In Origination and Advisory, revenues rose 20% year-on-year, outperforming the global fee pools, which were flat overall and down in our core focus areas of EMEA and leveraged debt capital markets. Advisory revenues grew by more than 50% reflecting strong performance in the Americas, healthcare and industrials and benefited from the closing of certain deals originally expected in the fourth quarter.

The outperformance versus the global fee pools was driven by strength in Debt Origination revenues with our leveraged loan and high yield businesses, both gaining market share in the quarter according to Dealogic. Equity origination revenues declined slightly year-on-year as we repositioned our franchise to our core industry verticals. As Christian mentioned, we are encouraged by the performance of our recent refocused ECM franchise with 55 mandates won since July.

Now, let me turn to the private bank on Slide 16. Our private bank too made progress toward its objectives in the quarter. We reaped further cost synergy benefits from the integration of our German units and generated volume growth across our businesses with revenue growth in our international businesses and wealth management. Revenues declined by 2% adjusted for specific items as growth in business volumes partly offset the negative impact of lower interest rates. We reduced adjusted costs excluding transformation charges by 1%.

Synergy benefits from our German integration offset our ongoing investments in wealth management and higher internal service cost allocations. Having generated approximately EUR150 million of cost synergies in the year-to-date, we are on track with the integration of our German operations.

Provision for credit losses benefited from the factors I mentioned earlier and a 13 basis points of loans year-to-date remained at a low level, reflecting the low risk nature of our private bank portfolios. We grew loans by EUR4 billion and assets under management also increased by EUR4 billion in the quarter.

A few words on the revenue performance by business on Slide 17. In the Private Bank Germany, revenues declined by 5% driven by the interest rate environment, which was only partly offset by growth in volumes. We grew loans by EUR2 billion, our sixth consecutive quarter of client loan growth notably mortgages and we generated the third consecutive quarter of inflows in investment products.

In Private Bank International, revenues grew by 5% driven by a strong performance in loan and investment revenues and by repricing measures in investment products and accounts. Wealth Management grew revenues by 5% excluding a lower benefit from Sal. Oppenheim workout activities supported by FX translation effects. We grew net new assets, net new loans and revenues, most notably in Asia and in the Americas and from our institutional wealth partnership and family office initiatives in conjunction with the investment bank.

The growth in Wealth Management was in part driven by our select hiring programs where we've increased revenue generating staff by more than 10% in the last four quarters. I'll now turn to results for our asset management segment on Slide 18 which includes certain items that are not part of DWS' stand-alone financials. As you will have seen in their results published this morning, DWS is on track to reach its 2019 net inflow and adjusted cost income targets, driven in part by faster than planned realization of cost saving measures. Despite the industry wide fee pressures, revenues were essentially flat year-on-year, excluding the negative impact of falling interest rates on the fair value of guarantees in select retirement products.

Adjusted costs were down 6% excluding transformation charges reflecting successful delivery on cost initiatives. Net new money was positive for the third successive quarter at EUR6 billion with positive inflows across our target growth areas of passive, alternatives and multi-asset. In the year-to-date, the business has attracted cumulative net new money of EUR13 billion. Assets under management rose by EUR33 billion to EUR754 billion, the highest level since 2015, driven by a combination of exchange rates, market performance and inflows.

With that, let me turn to corporate and other on Slide 19. Corporate and Other reported a pre-tax loss of EUR161 million in the quarter compared with a pre-tax loss of EUR23 million in the same period last year. The larger loss was driven by higher funding and liquidity charges which reflects certain funding costs held centrally as part of our new funds for the transfer pricing framework I mentioned earlier.

As we noted in July, these costs should be around EUR200 million per year in 2020 and should materially amortize over a five-year period. Shareholder expenses were EUR47 million in the -- above the prior year period on higher restructuring expenses while litigation expense was EUR74 million higher. In addition, the positive impact of valuation and timing differences was lower than in the prior year period.

Let me now discuss the capital release unit on Slide 20, the capital release unit was formed in July and was quick to begin executing on its deleveraging plan and simplification efforts. We reduced risk-weighted assets by EUR9 billion to EUR56 billion across credit, market and operational risk. We also reduced leverage exposures by EUR73 billion, largely driven by reductions in equities positions. The capital release unit recorded a loss before taxes of EUR1 billion. Revenues were negative EUR223 million, principally reflecting the EUR100 million of specific items, principally Debt Valuation Adjustments and an update to a valuation methodology.

Revenues were also impacted by hedging costs and de-risking losses on portfolios, some of which are now fully de-risked. Operating revenues, net of funding and liquidity charges were close to zero. Non-interest expenses of EUR790 million included EUR123 million of restructuring and severance and litigation and a further EUR87 million of transformation charges. We reduced adjusted costs excluding transformation charges by 6% quarter-on-quarter, driven by lower headcount and we've begun to implement our non-compensation cost reduction measures.

We realize that the capital release unit is hard to model from the outside, so we want to give you a sense of what it will look like. This outlook is consistent with the financial plans we laid out to you in July. We expect revenues to be negative as the contribution from the ongoing operations and the expense reimbursement from BNP Paribas are more than offset by de-risking costs which will remain volatile. Adjusted costs which annualized to EUR2.7 billion in the third quarter should decline in a fairly linear way to around EUR1 billion in 2022 with the exception of the bank levies allocated to the capital release unit in the first quarter and a step down in costs following the technology and client migrations to BNP Paribas.

And, as we highlighted in our July presentation, we will work to reduce the residual costs within the capital release unit as fast as possible. And to repeat, these projections have been fully reflected in our financial plans and capital outlook over the next few years. Before I close, a few words on the group outlook on Slide 21. Overall, we are on track against our near-term objectives. We're on track to deliver on our adjusted cost target of EUR21.5 billion for 2019 excluding transformation charges. We expect provision for loan losses to increase in the fourth quarter as part of the expected normalization from recent loan levels.

For the full-year, provisions for credit losses are expected to be in the mid-teens or slightly higher in basis points as a proportion of loans. We now expect restructuring and severance charges to be around EUR700 million in 2019 compared to our previous EUR1 billion forecast. This reduction lowers our 2019 [Phonetic] to 2022 cumulative restructuring and severance estimate by the same amount to slightly less than EUR2 billion. The lower estimate reflects more efficient usage of our budgets than we had previously forecast, as well as lower spend as a result of the BNP Paribas transfer.

Transformation charges which form a part of our adjustment cost -- adjusted costs are now expected to be up to EUR1 billion this year. The transformation charges primarily relate to software impairments as we implement our technology transformation. We will manage our capital resources to keep our common equity Tier 1 ratio at or above 13 through year-end, while maintaining a substantial liquidity buffer. As we have said before, we are focused on growing revenues in our less market-sensitive businesses and building on the momentum we can see in the investment bank.

Current market expectations for forward interest rates present a headwind to our revenue aspirations for 2022 that we outlined in our July presentation. However, we have identified a series of mitigants to offset these headwinds. First, the perimeter adjustments we announced with the second quarter results, increased revenues in the core bank.

Second, our businesses have begun more systematically pricing and charging for negative rates and the corporate bank and wealth management are well advanced working with clients on this. Third, we continue to deploy excess liquidity, including through the loan growth you have seen.

And finally, the introduction of tiering by the ECB, which we had not assumed in July should improve revenues by more than EUR100 million per year. So while the interest rate environment is challenging, it does not warrant a change in our 2022 revenue aspirations or return on tangible equity targets.

With that, we look forward to your questions.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of Daniele Brupbacher with UBS. Please go ahead.

Daniele Brupbacher -- UBS -- Analyst

Yeah, good afternoon and thank you. I had a question first on capital and then a more of a numbers question. On the capital side, in the July presentation, I mean you showed the expected capital ratio trajectory and I think it became clear that 2020 is probably the low point according to your budget. So I think it's quite a crucial year in that sense and I was wondering whether you could update us on your thinking around MDA trigger level and potential reductions there going into next year, given that you make rapid progress on the non-core reductions, which I think is key in that context.

And then secondly, sorry, just on these restructuring charge and transformation charges, could you also give us a bit of a guidance for 2020 on the transformation charges. I think you mentioned the EUR1 billion for this year, but what about next year and then also on Slide 25 in the July presentation, you gave us the details of the severance and restructuring charges. Just for me to be crystal clear here, does that include the transformation charges or not? Thank you.

James von Moltke -- Chief Financial Officer

Daniel, thank you for the questions, it's James. On capital, we had indicated in July an expectation that our capital requirements would come down over time as we executed on this strategy. We remain hopeful of that, but it's not something that we are able to announce at this time. It's something that we've been working on and -- but it is built into our forward expectations. Obviously, it's important, and we're very focused on maintaining a sufficient buffer above our MDA triggers, and hence the guidance we provided in terms of capital ranges and our minimum levels going forward.

On the transformation charges, you're correct to point to page 25 in the July presentation, and as we look to 2020 and beyond, our view right now and our planning is entirely consistent with where we were in July. You heard me say in the prepared remarks that there is a bit of a reduction in what we're planning in terms of severance charges, but that is partially offset by higher transformation charges that we expect at this point, again principally software impairment. That shift -- remember it's actually capital beneficial because the software intangibles are already deducted from capital, whereas severance charges would go to capital.

Daniele Brupbacher -- UBS -- Analyst

Okay, thank you.

Operator

The next question is from the line of Jernej Omahen with Goldman Sachs. Please go ahead.

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah, good afternoon from my side as well. I've got three questions please. So the first one is more of a conceptual nature. So since you've announced the restructuring, what has the response been from your clients? And what I have in mind is, number one, what's the response been from your corporate clients and secondly, what's the response been from your institutional clients where they had business with you both in equities and fixed income, i.e, are you seeing a knock-on effect from exiting equities in your fixed businesses as well or are you keeping that share?

The second question I have is on negative rates and the ability to pass this on. James, I think the last time I asked the same question on the last call and your response was along the lines of -- there are legal limitations to what we can actually pass on, particularly to the retail customers. If I ask the question this way, what's the proportion of your German deposit base, where you think you could pass on negative rates to broadly what would the answer to that question be?

And the third question is the following, so since you last updated the market. One of your larger competitors in Germany also released their own restructuring plan with their own targets. I think they're targeting a modest 4% return in 2022 assuming successful restructuring. And I was just wondering, given the similarity of the domestic businesses, what do you think is the key differentiator for Deutsche Bank domestically or in your domestic franchise that gives you -- that gives you optimism that Deutsche can deliver a return higher than that? Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Thank you, Jernej, it's Christian. I go for your first and your third question. Client response was actually very positive on both sides, corporates and also institutional clients. Obviously you can immediately also see it on the corporate side, with the revenue development, which we have seen in Q3. Corporate are very much like that we focus with our own division on that segment. You know, that in particular, in Europe, Deutsche Bank has always seen as a DNA as the corporate bank and to focus on that with its own division, with a strong financing business, with a strong transaction bank is obviously welcomed.

We can -- in particular also see the bridge from Germany into Asia, by the way, that is partially an answer also to your third question that the internationality, which we can offer to the corporate's and which is unchanged and actually where we further invest into is highly welcomed and therefore I'm not only pleased about the 6% revenue increase which we saw in Q3, but I am confident that we see further revenue increases then going forward.

On the institutional client side, the echo was also positive for the first reason, because we presented clarity. We clearly said where we are in and where we are out and to give you more details, we contacted versus during the first three weeks after July 8th, all the 3,000 and slightly more clients which are doing and have done active equity businesses where we are exiting. Only 3% of these clients actually came back and said that they have stopped doing business with us in other products which we have maintained.

Obviously, it's too early to call it a success, because then we started to monitor that, but what I can see with the momentum in Q3 also with these clients is that they are also thankful for the clarity and that they maintain the relationships in particular in those products, which we maintained. So overall, the external feedback on the strategy is very positive, same by the way internally that people know for what we stand what we are doing and that we provided clarity.

On your third question, with regard to the comparison, I really -- first of all, I don't want to talk about a competitor, but this is a different business model. First of all, I think if you look at our revenues, which we see globally, only 30% or 32% is coming from Germany with the rest being International and I just said, in particular our transaction bank makes a huge difference. And in Germany, to your question, this transaction bank also makes a difference actually versus our competitors, not only the one you mentioned, but also the other ones.

I think the international business, we offer for the Corporate through the transaction bank is of a big competitive advantage, providing also for upside, obviously in the profitability and in the retail business or in the private banking business, we are even more focused on the affluent business and there we are more focused on the fee income business. So I think there are clear differences also in the way we acquire clients, and hence I think this explains the different approaches and then also the different profitability.

Last, but not least, when we come to the different -- I think we started very early. In Germany, actually 2016 with a material branch reduction both on Post bank, but also in the Blue Bank, that is also a different approach. Therefore we have from a cost point of view an advantage, simply because we executed earlier.

James von Moltke -- Chief Financial Officer

Jernej, on your second question, it's James. As we talked about, we are -- as you'd expect, we have been going through our deposit portfolios in great detail to look at client segments where we felt we could do more, in terms of passing on negative interest rates. As I mentioned on the last call, we see that as more difficult in the private bank business than in corporate or institutional deposits and we don't see an ability to essentially adjust legal terms and conditions of our accounts on a broad-based basis.

However, we do see an ability to have individual client conversations and especially in larger deposit relationships essentially implement aversion on a smaller scale of the type of tiering that you would see around client relationships in the corporate bank or wealth management. So we've done that analysis. We are in the early stages of implementing. If I were to give you a really round number in terms of the percentage of the deposit base that could potentially lend itself to those types of actions, I'll give you a ballpark of about one-fifth.

Now, that isn't -- I don't want you to interpret that as a clear expectation that we'll be able to implement those types of relationships across as larger share of the deposit base, but to give you an order of magnitude at this point in terms of our analysis of the size of the potential opportunity in PB.

Jernej Omahen -- Goldman Sachs -- Analyst

Thanks a lot. James, just a follow up on the last question. Would you welcome a deposit outflow at this point?

James von Moltke -- Chief Financial Officer

The short answer is yes. We have a very low, relatively speaking loan to deposit ratio. So we are -- we have the funding to contemplate, potentially losing some deposits as a reaction to pricing actions that we've taken, or will take in the future. So now, of course, we look at the overall client relationship, when we make decisions about where to impose or charge those negative rates. So it is a very granular and sort of individual discussion, hence my reticence about telling you the entire one-fifth, we'd actually execute on.

I would also say in the period of time, leading up to and subsequent to the ECB action, I would say we do see a sort of a change in sentiment, especially in the German market where the market environment generally has begun to recognize that the banks can no longer shield clients from the -- the cost of the negative interest rate policy, and so the early days, the early experience in terms of client reaction would tell us, you're unlikely to see as big of an impact and an expectation that we have that some of this will be a broader market event than simply one banking house.

Jernej Omahen -- Goldman Sachs -- Analyst

Thank you very much.

Operator

The next question is from the line of Jon Peace with Credit Suisse. Please go ahead.

Jon Peace -- Credit Suisse -- Analyst

Yeah. Thank you. Good afternoon. First question, I just wanted to clarify a couple of the comments you made on target. So James when you were talking about the 2022 group revenue aspiration being unchanged, is that the EUR25 billion you had on Slide 22 from July? And then on the 2019 costs, you're at EUR21.5 billion on an adjusted basis, plus EUR1 billion for transformation. So it would be EUR22.5 billion for this year.

And then my second question was just on the sort of medium-term capital outlook. Do you have any updated thoughts please on the impact and the timing of Basel 4?

James von Moltke -- Chief Financial Officer

Sure, Jon, hi. So two answers. Yes, correct in both cases. In the rounding, our 2022 revenue expectation was about EUR24.8 billion, we've talked about seeing obviously, interest rate related headwinds that we -- that we are suffering on a forward basis there. Well, then we talk about what we see as mitigants that should offset all or most of that, interest rate headwinds, those mitigants as we said perimeter adjustments, pricing, deposit pricing, fees and commissions and hopefully growing AUM, perhaps a little quicker than we had intended.

And also there has been a little bit of improvement in our thinking from FX rates from tiering and from additional actions around balance sheet improvement. So it's obviously some range that you would think three years out. There are moving parts across that planning, but by and large we're targeting in and around that earlier level. We're not sitting on our hands as the environment changes, we are looking for offsets and of course the interest rate environment reflects market expectations and sentiment today. You've seen -- through the fourth -- the third quarter, you've seen changes in that outlook from the low points sort of in mid-August to where we began and where we ended the quarter. So it's a dynamic environment, but our targets are consistent with our July.

On the costs, EUR21.5 billion is correct and it excludes what we've defined as transformation charges. Just as a reminder, our adjusted cost definition in ordinary circumstances includes things like amortization or impairments of software intangibles in certain of the real estate actions that we're taking, but given the size at the moment and the non-recurring nature, we've pulled those out and shown the impact of those charges quite transparently, and so you're right that the operating cost number would be about EUR1 billion higher than the EUR21.5 billion, ECB ex-transformation charges.

On Basel 4, look, the implementation is dynamic in some respects. We follow it carefully, we're obviously very engaged in advocacy. I would say that our internal planning is broadly unchanged with what we shared with you in July. That said, I do think there has been a shift in tone somewhat in the political sphere around the way we should implement Basel 4 in Europe. That's encouraging, because as I think you may have heard me say in -- on previous occasions, the way that Europe chooses to implement Basel 4 very much within the framework of what was agreed in the FSB, but in the details of how the rules are structured and calibrated, we think there is a wide range of outcomes and obviously the less onerous it is on the banks, the better for credit intermediation in Europe and the cost of capital.

So that's giving us I think a slightly more optimistic tone about in our thinking about implementation, but no changes in our planning because we want to plan on the conservative side. Hope that's helpful.

Jon Peace -- Credit Suisse -- Analyst

Yeah, thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Let me potentially reiterate that point Jon, what James just said. Over the last 18-months, I have to say I have never seen a bigger interest also from the political side also in our home country here on Basel 4 implementation what it means, how we compare to US banks. So while this is not, this kind of interest, does not immediately result in a solution, the politicians are very much engaged, want to have our analysis and to offer at least that they listened to us that they want to have our proposals. I have also not yet experienced such an alignment among the European banks like I've just seen in Washington on the IRS [Phonetic] meeting. So I think everybody is aware that this is something which we jointly have to address and not only as banking institutions, but also together with the politicians and here I see real progress.

Jon Peace -- Credit Suisse -- Analyst

Thank you.

Operator

The next question is from the line of Andrew Stimpson with Bank of America. Please go ahead.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Good afternoon, everyone. First question on leverage exposure please. In the IB, that was up EUR34 billion quarter-on-quarter, that seemed like a lot to me, I mean it's about half of the CRU reduction you saw in the quarter went right back into the IB, I felt like the July presentation this is more likely to be used to grow the other core divisions. So what -- just interested, what drove that increase and is that a seasonal, could that unwind into year-end at all.

And then secondly on the private bank, the new time series that we all had made it seem like costs were going to come down much quicker than I guess it's partly a problem with getting used to that -- the new time series in any seasonality there perhaps, but underlying costs were up 3% quarter-on-quarter.

The slides there referenced wealth management hiring. Is there more to come in terms of those cost investments before we see the savings come through, because obviously the cost saving target you've put for that division is quite big. So I'm just wondering if you can talk about how the trajectory of how we get there, whether that's more back-end loaded, please. Thank you.

James von Moltke -- Chief Financial Officer

So, Andy. Hi, it's James. On those two questions, the IB leverage, you're right, it's strategically while we intend to grow loans, the extent that was probably greater than we would have expected. About a third of that is just the impact of FX and so, that's not in our control. It also impacted the -- if you like, the reported loan growth numbers, so you have to adjust for FX there. Of the remainder, about 50% is from derivative mark-to-market changes and the other 50% from inventory bouncing back from relatively low levels at the end of Q2.

Both of those, certainly into year-end, I would expect the latter to be transitory, especially as we see pending settlements come off. And the derivative mark-to-market changes have been a result of the level of interest rates and so just the -- in the money nest of -- on both the asset and liability side in today's yield curve has increased. You'll see that on our balance sheet for a period of time and very likely or that runs off then over time as well. So, I won't call it all accidental, but most of it is not driven by specific strategic changes or decisions.

On the private bank cost, yes, it's getting used to a different segmentation. The other thing is that, in -- I mentioned some of the internal service cost allocation changes that we'd be making and the PB there actually sequentially was impacted. So it's a little bit worse as what you're seeing reported then is truly kind of going on in the organization. That said, we are essentially in that phase right now of having relatively smaller synergies, I mentioned the EUR150 million year-to-date in the German retail, offsetting still reasonably large investments we're making in PB.

We do expect that relationship to change as the synergy realization gathers pace further in Germany and actually also as you see, the pace of investment in some places change. So an example that I've cited in the past is the investments we've made in technology in Italy, that goes away in the middle of next year. So, you do see some roll-off of investments that's part of the picture today. Hope that's helpful.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Okay, yeah. Thank you very much.

Operator

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

Kian Abouhossein -- JPMorgan -- Analyst

Yeah, thanks for your question -- for your time. My questions are, just coming back to the revenues, EUR24.8 billion target. Last time on the call, we were discussing short rates breaking even in Europe, mid-2021, the current year EURIBOR [Phonetic] curve is indicating February 2025. How do we square the target with the current interest rate outlook and forward curve, and should we expect a more new guidance considering the change in interest rate expectations by the market?

And in that context, coming back to private banking, you make an [Indecipherable] of two, your target by '22 is 12-plus. Can you explain to us how you get there without a more aggressive interest rate outlook and what other measures you can take, if you're still sticking to your interest rate outlook in order to get there.

And the third one is on the CRU, if I strip out the DVA, that's a cost run rate of around EUR100 million in the revenue line from negative 100, if I look at your risk-weighted asset reduction and adjust for op-risk, then we are looking at about 1.5% cost per risk weighted asset reduction. What I'm trying to understand is how much will it cost you on average to reduce risk weighted assets, so we can clearly assume some kind of revenue reduction in our models, if you can help us with that.

James von Moltke -- Chief Financial Officer

Sure, Kian, thank you for the questions and I'll start on them and Christian may want to add. On your EURIBOR, yeah, you're absolutely right in the sort of the change in the environment and the assumptions that we made. As we mentioned at the time based on the implied forward rates at the end of May that's obviously moved around considerably over the course of the month since then. And clearly the EURIBOR rate represents a headwind to revenues, especially for PB, but also for CB, our deposit books are impacted there as you can see in our net NII sensitivity disclosures.

I think it's important to note that those interest rates change. So where we are and how sentiment changes over time can go in both directions. So then the question with an acknowledged headwind, and you'll recall that we separated out the interest component of revenue growth through to 2022 in our presentation. Clearly, that EUR600 million and potentially more is at risk. And so that helps you define how much of an offset we need to achieve from some of the other items that we mentioned as mitigants in our forward planning.

And that leads quite neatly to the private bank RoTE and as you can see, it's over the past couple of years run in a range of between 2% and 4%, and so clearly there is a steep hill to climb in PB. As -- your question, the previous question expenses are a big part of the PB RoTE expansion story, given the extent of merger synergies and other expense benefits that we aim to extract, but the revenue line will be challenged from the interest rate environment, and there the work is greatest to offset it from the types of measures that we -- that we outlined. But we continue to work toward the targets that we set in July.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

There's not a lot to add from my side, potentially, I mean on the private bank, on the revenue side as James was saying, I think we have intensified all our measures to reprice, but also again to increase our efforts to move deposits in other kind of investments, but also think about that obviously in order to compensate for potential headwinds, James and you were outlining, we also have a project under review to merge the PFK AG into DB AG. These are all the measures we are then taking in order to compensate for further cost reduction or for revenue headwinds in order to make good for cost reductions.

Now this is under review, but you can see that this management is very active then immediately to compensate -- to look for compensating measures. So I think it's not only a revenue story where we made good, but obviously a, fully adhering to the Arcelor [Phonetic] 900 million synergies where you heard that the 150 million have been brought in the first nine months. And then obviously looking also for further measures.

On the CRU de-risking costs, as you pointed out with the sort of specific items that we call out this quarter of DVA and a methodology, a valuation methodology adjustment on some positions in CRU, I don't think that this quarter is -- is going to be representative of de-risking costs as a percentage of the asset reduction. So, to begin with the asset reductions, relatively speaking, we're in more liquid categories and we're -- frankly our execution was better than our internal planning. So we are pleased with the early results there in de-risking. That said, there were some risk costs in the -- if you like the portfolios that are scheduled for de-risking and some that have now been completely de-risked.

So that added in the CRU to the cost this quarter, as we've now bedded down the portfolios, we can risk manage them independently. We're comfortable with our sort of risk profile there and our ability to manage. So it -- in future quarters, it will probably be more purely a de-risking cost on transaction than perhaps it was this quarter. All of which is to say, I would not draw that relationship at this point, it's a little bit too early.

Kian Abouhossein -- JPMorgan -- Analyst

Can you give us any steer on how we should think about the revenue run rate in the CRU because clearly that's a difficult one for us. Is there any relationship that you can put against risk weighted assets on any other context and if I just may ask one more time, the EUR600 million on interest rates, clearly the curve has moved further out from May. So if I would do a rerun of your numbers of how much come from interest rate, that number would be significantly bigger today than EUR600 million, is that correct?

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

So the -- what we pulled aside in May as interest rate related or driven that would all, or most or more would disappear. The underlying compound growth rates that we gave you in May excluded the impact of interest rates. So we wanted to be able to separate what we'd think of as underlying growth from loan growth from fee and commission income growth, from assets under management growth, essentially those non balance sheet items from the interest rate impact and that was the compound growth rate we were talking about.

In terms of the revenue picture in CRU, the portfolio itself doesn't throw-off a significant amount of revenue, especially on the derivative side. It does have some hedging cost that is an ongoing cost. So I'd say a relatively small revenue contribution from the portfolio over time.

Once the Prime Finance transfer transaction with BNP Paribas closes, there will be a revenue recognition on that from the expense reimbursement element of the transaction. That's essentially a gross-up, and so, there'll be an offsetting, continued operating expense. But you'll see impacts in both the revenue and expense lines going forward. Then you will have on top of that de-risking costs. The net of that, I would expect to be negative on an ongoing basis, but how negative is something, we'll need to talk about in future as we establish sort of a more visible run rate.

Kian Abouhossein -- JPMorgan -- Analyst

And sorry if I may one more time on the CRU before I forget, you will only sell assets if you can sell the hedging as well, right? Or you will be willing to keep the hedging and sell the assets?

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

No, we would -- I mean the assets and the hedging comes off. It's one of the complexities of moving a portfolio over, is to -- some of the assets are and some aren't you know, if you like, cash flow hedge. So we've been working through those details as we go along. It's obviously part of the overall risk management picture, but we can now isolate the two portfolios.

Kian Abouhossein -- JPMorgan -- Analyst

Great. Thank you very much.

Operator

The next question is from the line of Stuart Graham with Autonomous Research. Please go ahead.

Stuart Graham -- Autonomous Research -- Analyst

Hi, thank you for taking my questions questions. I had two please. First on provisions, you mentioned in the EUR104 million benefit from model refinements and the annual calibration of your models. Can you explain why that's a benefit? Whereas I would have thought, given the challenging macro outlook, that would have been a negative.

And the second question is on the loan growth in the IB division, which is running at 22% year-on-year and since you're very focused on CRE and ABS, most of your peers are growing at mid-single digits. So, can you discuss what you see as your secret source, I guess, which allows you to deliver such very strong loan growth at a time when many of your leading peers are unable to do so. Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Sure. Thanks, Stuart. So on the update of the expected credit loss model, we do that work annually and one of the key aspects of it is to calibrate the losses the model predicted, versus our actual loss history and expectations. Those updates relate to macroeconomic variables, the regression methodologies, the observation periods that we choose and obviously the forward-looking variables that we do feed into the model. So all of those things are reviewed and checked against if you like the fit against loss history, and that's what resulted in the benefit in this quarter. To your point about the timing, what it tells you is that we overbuilt reserves against those forward-looking indicators in the past, relative to the expected loss components that we see or content that we see in our portfolios. That EUR100 million-odd net benefit should be considered against the EUR4.5 billion balance sheet loan loss provision. It's not really against the ongoing quarterly level of CLP that we're taking.

Stuart Graham -- Autonomous Research -- Analyst

Okay.

James von Moltke -- Chief Financial Officer

Stuart on your second question, it really comes down and plays down to our strengths and to our core DNA as a financing bank. We always said that through the time, but in particular, the focus of this strategy was designed to further foster our financing business. There we see a good pipeline, but I can reassure you like we have done it in the past, we are not changing and we have not changed our risk appetite, our underwriting standards.

And if you really view our loan loss provisions and risk history through the cycle, you'll see that not only from the underwriting standards, but also from an active risk management, I think we are superior. And therefore, the quality of the portfolio is unchanged, but it plays simply to our strengths. So, it's not undue risk taking. We have the strengths, we have the client franchise and in particular, it was the focus on this business, there is obviously even more demand.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Stuart, one other just a thing to point out, is -- FX is a significant part of that growth. So in the back of the presentation, you'll see a slide where we present the growth rates both with and without the FX impact year-on-year, page 32. So it's a little less than you were citing ex, the impact of FX.

Stuart Graham -- Autonomous Research -- Analyst

Right, but the 17% is still very strong, isn't it?

James von Moltke -- Chief Financial Officer

Yeah.

Stuart Graham -- Autonomous Research -- Analyst

Fine.

James von Moltke -- Chief Financial Officer

And it contributes to future revenues.

Stuart Graham -- Autonomous Research -- Analyst

Can I just ask one clarification? James, you mentioned 20% of deposits could be repriced negative in an answer to an earlier question. Was that all deposits or private bank deposits. I wasn't quite clear?

James von Moltke -- Chief Financial Officer

That was private bank deposits, so the analysis behind that is, if you were to make some assumptions about where you could begin to impose a tiering like structure in that deposit base, it could affect up to about that level of the deposits. Again, round numbers, what you're actually able to do is I say, depends on the market environment, depends on your dialog and relationship with the clients. And the part of the other question was, are you willing to see deposits walk out the door? At our level of liquidity, the answer is yes, you want to retain the client relationship and in particular, in our case, wealth asset management, advisory type of products, but the deposit part of the relationship is obviously economically less valuable.

Stuart Graham -- Autonomous Research -- Analyst

Thank you for taking my questions. Thank you.

Operator

The next question comes from the line of Adam Terelak with Mediobanca. Please go ahead.

Adam Terelak -- Mediobanca -- Analyst

Yeah, I just wanted to come back actually on the deposit repricing. I mean, you seem to be relatively confident that you can pass on negative rates, but how do you think about that relative to the senior debt you're looking to take back in the next couple of years? Clearly with what senior spreads are at, any deposit is actually cheaper funding. So whether the decisions you're making on deposits is led by the liability restructuring strategy.

And then secondly was on operational risk and that's coming probably below where you're guiding and below expectations. I just wanted to see if you could give us a bit more of an update on what you can do on operational risk in the core business. And what the AMA model, you've got there and the relationship, you've got with the regulator there in terms of bringing that number down. Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Sure, thanks, Adam. On liquidity, we are doing all of the above in terms of balance sheet optimization. So, as you know, we are allowing some of our unsecured debt to roll off and that saves us the coupons that are relatively high spread. Of course deposits are cheaper sources of funding than unsecured liabilities. But the two have different constraints when you think about it.

The unsecured liabilities, the bonds is part of as we think are capital stack to meet MREL requirements and other things. So there is a level at which we would bottom them out, that's part of the cost of funding on a blended basis of our businesses. The deposits are another part of our funding base, have a pretty different set of characteristics in terms of liquidity as to what the value is of those deposits in our liquidity modeling. But also, as I say, the nature of the relationship and other features of that deposit relationships. So one can act on both fronts at the same time as you optimize your liability stack.

On the op-risk item, we -- as we said in our prepared remarks, we did make some progress in our op-risk RWA modeling and engagement with our supervisors during the quarter. That was a little bit quicker than what we had intended. And that's a positive, frankly. We think there is more room to go as we reshape the company in terms of the AMA models that govern our op-risk RWA. The dialog with our supervisors is very constructive in this regard.

Always hard to tell, you know, over what time period and in respect of which adjustments we are going to reach agreement, hence we are relatively reticent or conservative about that portion of the deleveraging. But it's something that we're working actively on and I would say, have a very constructive dialog with our supervisors on.

Adam Terelak -- Mediobanca -- Analyst

Just a follow-up, on that dialog, does that include the [Indecipherable] requirements in terms of a standardized model and how that might look on a Basel 4 basis?

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

It does.

Adam Terelak -- Mediobanca -- Analyst

Okay. Thank you.

Operator

The next question comes from the line of Anke Reingen with RBC. Please go ahead.

Anke Reingen -- RBC -- Analyst

Yeah, thank you very much. I just had two questions. The first is, sorry, if I missed this. On your pension hit [Phonetic] on the Core Tier 1 ratio in Q4. Can you please give us a bit more clarity. And is there also something on TRIM to come? I think there might be potentially another 5 basis points.

And then on the prime brokerage and modeling of the CRU, can you please come back to your earlier comments. So, were you basically suggesting on the cost they're to the whole exposure has gone, but there might be a benefit to the revenues and what sort of like magnitude of numbers are we talking about in terms of revenues and costs? Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Sure. Let me take each of those in terms of the -- the pension adjustment that we indicated was part of our capital planning for the fourth quarter, relates to a process that we do from time to time looking at the mortality in our portfolio. You will recall, we made a partial adjustment last year around changes in mortality tables, that work has gone on into this year and we'll make final determinations of the defined benefit obligation at the end of the year. So we are just anticipating in our planning expectations based on what the current analysis suggests.

On TRIM, we did reflect in the third quarter the amount that we were expecting from the ongoing feedback. We don't expect additional regulatory-related items in the fourth quarter on a net basis, so neutral in the fourth quarter on a net basis. The next TRIM impact we would -- we expect some time in 2020. Always hard to say when, but our expectation is it would be sometime around the middle of the year, so Q2 or Q3. And again, that's built into our forward capital planning.

On the transfer of the Prime Brokerage to BNP Paribas, just to provide a little bit more color. During the transition, they will receive the margin from the business, net of an expense reimbursement that we receive from them. And so those two items will be recognized in our revenue lines on a net basis. We'll continue to recognize the expenses to operate that business as we do today. On the balance sheet side, they will take almost all of the RWA and around half of the leverage exposure on to their balance sheet through a synthetic transfer mechanism, think of it like a swap.

Economically, it's quite similar to simply transferring assets and having a transition services period that is they receive the benefits and burdens of the business and we have a gross-up of the relevant costs across revenue and expense lines. And obviously within the expense lines, we're going to be working overtime to bring that to a breakeven for the business before allocated costs and also be working on taking down the allocated overhead over time. As to specific amounts, we're not going to disclose that at this time, and we'll wait for closing and then you'll see it in our financial results going forward.

Anke Reingen -- RBC Capital Markets -- Analyst

Thank you very much. On the pension, is it about 20 basis points? Or how much should be penciled in?

James von Moltke -- Chief Financial Officer

It's less than that.

Anke Reingen -- RBC Capital Markets -- Analyst

Okay. Thank you.

James von Moltke -- Chief Financial Officer

But again, embedded in the guidance we've given.

Anke Reingen -- RBC Capital Markets -- Analyst

Okay. Thank you.

Operator

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

Amit Goel -- Barclays -- Analyst

Hi, thank you. And so, I mean, I've got a couple of questions, just coming back actually a little bit to the targets and the kind of revenue aspiration. And I mean obviously in July, and the starting point was either, I guess, the EUR22.8 billion and then maybe the EUR23.4 billion of revenues. And I think you've helped clarify some of the mitigants against some of the interest rate headwinds that we could see.

But I'm curious, I mean, for example, if I look at Q3 core revenues just some simple back of the envelope math, and at times by four. I'm getting to current levels of more like EUR22.2 billion or so. So just really wanted to understand also that delta and what you kind of had expected for core revenues to do in the process.

And then in terms of the targets, curious, I mean, obviously the comments in the report about at this stage you continue to have the 2022 revenue aspirations and targets unchanged. But does that mean that come December the 10th, we could see some revisions to those targets? Or what is it that would lead you to adjust on those areas? So that's my main question, and the second was just a clarification on service cost allocations. So we can have that afterwards.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Amit, it's Christian. So I think in particular for the outer year, James gave already a lot of guidance. So we absolutely recognize that there is headwind from the interest rate curve, but please also take into account that since July 8th, we had a series of mitigating measures we announced on the call on the 28th of July, or end of July for our Q2 results that there is a new or a different calibration, actually what remains in the Core Bank and what is in the CRU Bank. I think we quite in detail said how much and how intense -- intensified we have our work on repricing, in particular in the Corporate Bank, but also in parts of the Private Bank.

And now, while this is still 2.5 years or 3 years out, I'd tell you, if I simply look at the Q3 revenues in the Core Bank, including by the way in the investment bank and compare that to our internal plan numbers, we are clearly better than our internal plan. And yes, already in this quarter, we faced, as you can see in the Private Bank in Germany, we faced certain headwinds in the interest rate environment. However, we made good via other revenue streams, which were better than we initially thought, also by the way in the Investment Bank.

So for us, at this point in time, there is no reason to reduce that goal. We know that we need to work on certain mitigating measures. We have laid them out and that is also exactly the work we are doing right now, where we again review and confirm our planning for the next couple of years and then we give you further details on the 10th of December.

Amit Goel -- Barclays -- Analyst

Okay, thank you. And in terms of the second question, this is more clarification. I just want to check in terms of the service cost allocation changes, do those just affect Q3? Or in the restated numbers we have for the previous quarters, do those already also reflect those service cost allocations? Or is this just a delta in Q3? Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

So, the answer is that in the restatement, we applied the allocation keys that reflect today's segmentation over history. We did not apply all of the changes that have updated those keys to the history that we did in the third quarter. So you do see some change in the variances as a consequence of that. And there is some degree of shifting or, if you like, phasing within the year. So it's a bit of a mixed story in terms of the impact. We tried to give you a sense of where it might be a driver of the variances in our prepared commentary.

Going forward, as I mentioned, we have done a huge amount of work over the last two years on being able to look at and charge for internal services based on specific drivers. And so that is a charging mechanism that we will implement from Q1. We're planning on that basis in this year's planning round. I will say that the direction of travel in those allocation keys has brought the businesses closer to what we think is that driver-based charging mechanism. And we also included a pro forma overlay for that in our -- in the numbers we provided in July from a planning perspective. So we've been sort of transitioning to this new methodology. It does, as I say, create some noise in terms of comparisons, but it's putting us in a very different place in terms of transparency and management capabilities.

Amit Goel -- Barclays -- Analyst

Okay, thank you.

Operator

The next question comes from the line of Andrew Coombs with Citigroup. Please go ahead.

Andrew Coombs -- Citigroup -- Analyst

Good afternoon. Two questions from me, please. Firstly, on some of the mitigating measures that you've mentioned to offset the rate headwinds, I think you provided a lot of color on the perimeter adjustments, the impact of tiering charge on the negative rates. But I do want to come back to the excess liquidity reduction. This is something you talked about over a year ago, we saw the LCR dropping 148 to 140 last year, it since kind of stabilized at that level. So I just wanted to clarify if whether you still think that can drop further and move more into line with peers and the potential benefit there.

And then my second question was with respect to the fixed income revenue progression, down 10% year-on-year, so it is worse than peers. You flagged the distressed debt, and also OEM there's some specific issues with the quarter versus the prior period, but I'm more interested in rates. You obviously have done quite a sizable restructuring of that business as well. And so I just want to check is that largely done? Is that a step change that we should see this quarter and we shouldn't see any further headwinds there? Or is there still some more pressure to come through? Thank you.

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

Andrew, let me start with the second question. So overall, I really do think that we have to dissect the Fixed Income business into three. As James was saying, I think we have done very well in the financing business. We have done well in the FX business, and always see that also in the context of the restructuring, which we have announced. I mean, such a restructuring, which is the largest one over the last two decades in Germany -- in Deutsche Bank, is obviously impacting in particular the main unit, which is addressed. And hence, you have certain impacts then also on the Fixed Income business.

In the Rates business, we have seen weakness in the setup in the governance. We made changes to that. And honestly, since we have made the changes, that was in July and August, we have seen a very good momentum in September and we believe that this is a core offering of Deutsche Bank. We think we have the right structure, the right setup. And again, from the numbers that I can see, I'm actually quite confident that we can now reach our targets. The same, by the way, applies to the second weaknesses, which we had in the Fixed Income, which was emerging markets. There, I think we cleaned up our books. We have a strong risk management in, we have a strong leader in who knows what to do. They are actually the link like in rates, that we link that business to our corporate underlying franchise made really the difference from September on. And therefore, I think we are rightly set up and I'm confident that we can reach our targets there.

James von Moltke -- Chief Financial Officer

So Andrew, on balance sheet optimization, just a short answer to your LCR question, we published 139 this quarter, and we'd indicated in the past that we do see opportunity to continue to bring that lower, prudently, but toward more like 130. It takes some time as we put in improvements, but we're on a path toward that. The liquidity deployment that we've had -- that we've talked about, the principal area being in investing in assets out of treasury. We've done that to an extent a little less than we had originally envisaged, but we have built a portfolio there that is producing revenues in treasury.

And then secondly, we've gone much further in terms of allowing unsecured debt to roll off. That's helped. We've also found that with the growth opportunities that have shown up in the businesses, relative to our earlier planning, it's obviously better to do the lending in our core businesses. And we've sort of seen more of that optimization, if you like, take place in the core business growth than in treasury. But we've been pursuing really all of the above as we benefit from balance sheet optimization.

Andrew Coombs -- Citigroup -- Analyst

Thank you.

Operator

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

Andrew Lim -- Societe Generale -- Analyst

Hi, thanks for taking my question. So if you look at the Private Banking net interest margin historically, it seems to be deteriorating at a faster pace these past two, three quarters. I was wondering why you think that's the case. I'm wondering specifically, actually, whether mortgage prepayments are included within that net interest income and that -- whether you're seeing a faster rate of mortgage prepayments lately?

And then my second question is just on the costs. Your EUR21.5 billion target for this year implies that you should make EUR5.7 billion for the fourth quarter. And so given what you made in the third quarter, that seems quite achievable. Are you prepared at this moment to say that you can beat that EUR21.5 billion? Or should we expect some kind of fourth quarter seasonal true-up in costs? Thank you.

James von Moltke -- Chief Financial Officer

Thanks, Andrew. So just on the NIM in Private Bank. Yes, it's down from 2.1 to 2.0. So it essentially fell in the rounding a little bit in the last couple of quarters. What you see there broadly is the impact of the interest rate environment, that is predominantly, but not exclusively a euro book. On prepayments, I don't have an answer for you right now in prepayments in general. There have been prepayment activities in certain of our mortgage books, including internationally, but it to us is not apparent as a major driver of NIM in the numbers you're looking at. On...

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

If I may add. I mean, James, I think in most of the credit segments, also in the Private Bank, actually the margins on the loan book increased. So we can clearly see a positive development there. I think even in almost all categories, be it mortgage financing, commercial loans and consumer finance, we see an improving margin just to make the whole story round.

James von Moltke -- Chief Financial Officer

So on expenses, no basis to revise our target for this year or next. What we're very, very focused on is managing our run rates over time, and you see that progression in the slides we show. You also see what we need to achieve in Q4 in order to remain on track. So we think we're on course here, but managing everyday expenses tightly in the company to bring back -- bring down that run rate.

Andrew Coombs -- Citigroup -- Analyst

That's great. And thank you.

Operator

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

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thanks very much. I've got a couple of follow-up questions. Well, first on your repricing efforts, because you've mentioned the adjustment to deposit pricing strategy in GTB, you've also mentioned the kind of pricing changes in Wealth as well to protect the margins going forward. So what are those pricing levers that you are actually putting through? So that's the first question.

The second one is how should we think about the impact of the roll-off of the equity business in the transaction bank in particular? You've kind of mentioned some impact on the security services, just wondering if we could quantify that?

And my last question is really about the -- what should we think about the BNP transaction into 2020? I think on Slide four, you gave us the expected leverage impact in 2019. But what are the milestones in the early 2020 that we should look at for the finalization of this transaction? Thank you.

James von Moltke -- Chief Financial Officer

So on deposit pricing, it's pretty simple. It's that you will pass on a negative rate, something approaching what we pay or equivalent to what we pay for deposit balances that exceed a certain level. And I think that'll be reasonably consistent throughout the marketplace. There may be instances where customers would prefer to pay fees, depending on the type of activity or the segment within which we're operating. And as I say, the overall customer relationship, the value of that relationship is critical, because for every euro we take, we're essentially writing a check to our clients. On the roll-off, I don't want of equities within the custody business, I don't want to quantify. It was a modest impact, but did have an impact on the growth in our trust and agency securities and custody business, but it was not an enormous or disclosable level of revenue there.

In terms of the BNP Paribas milestones, the first step is to close the transaction on receipt of regulatory approvals. That's something that we would still anticipate for Q4. Then in 2020, we would have the type of economics that I described, which is essentially a net margin plus a gross-up of costs in both the revenue and expense line for us that is, in direct terms, EBIT-neutral. And that relationship will continue more or less until the final transition of the business that we're essentially operating on BNP Paribas' behalf during the pendency and then go away at the end of that period. The long stop date is 2021.

On a balance sheet perspective, we essentially retain or recognize the leverage exposure to do with direct customer business. The rest of, if you like, the hedging balance sheet is synthetically transferred to BNP Paribas. So the EUR20-odd billion will move around based on customer balances, but an amount like that should be with us for us some time.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you.

Operator

There are no further questions at this time. I hand back to James Rivett for closing comments.

James Rivett -- Head of Investor Relations

Thank you, Emma, and thanks, everyone, for joining today. We look forward to seeing you all on 10th of December in Frankfurt. Speak to you soon.

Operator

[Operator Closing Remarks]

Duration: 100 minutes

Call participants:

James Rivett -- Head of Investor Relations

Christian Sewing -- Chief Executive Officer and Chairman of Management Board

James von Moltke -- Chief Financial Officer

Daniele Brupbacher -- UBS -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Jon Peace -- Credit Suisse -- Analyst

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Kian Abouhossein -- JPMorgan -- Analyst

Stuart Graham -- Autonomous Research -- Analyst

Adam Terelak -- Mediobanca -- Analyst

Anke Reingen -- RBC -- Analyst

Anke Reingen -- RBC Capital Markets -- Analyst

Amit Goel -- Barclays -- Analyst

Andrew Coombs -- Citigroup -- Analyst

Andrew Lim -- Societe Generale -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

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