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Deutsche Bank AG (NYSE:DB)
Q2 2020 Earnings Call
Jul 29, 2020, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Deutsche Bank Q2 2020 Analyst Call. [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 all for joining us today. As usual on our call, our CEO, Christian Sewing, will speak first; followed by our Chief Financial Officer, James von Moltke. The presentation, as always, is available for download in the Investor Relations section of our website, db.com. But before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as we currently anticipate. Therefore, we 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

Thank you, James, and welcome from me. Looking back on the first year of our transformation, we are on track with or even ahead of the objectives that we set ourselves. Our new strategy is paying off. Client feedback and momentum as well as internal employee feedback demonstrates that we have found our path, and execution is well under way. The results we present today underpin our confidence that we will reach our 2022 targets. Last quarter, we told you that we were determined not to let the COVID-19 pandemic impact the execution of our transformation. And at this stage, I'm happy to say that is the case. We were profitable in the second quarter and the first half of the year. Growth in Core Bank earnings more than offset the wind down of the Capital Release Unit, elevated provisions for credit losses from the pandemic and transformation impacts. The results in the second quarter and for the first half year are ahead of our internal plans.

This speaks to our strategy and our relentless execution. We told you last year that we would execute quickly, and we have done so, with over 3/4 of our expected transformation costs already behind us. Capital and liquidity were also stronger than our internal plans at the end of the second quarter. This validates our view that we can finance our transformation with existing capital resources. It also positions us well to continue supporting our clients through conditions which remain challenging. We also shaped our technology and sustainability strategies in the second quarter. Next to the announcement of the Google Cloud partnership, we set ambitious sustainable finance targets of at least EUR200 billion by 2025 and issued our first green bond. You will hear more from us on our sustainability strategy in the coming quarters. Let us go through these themes in more detail, starting with the progress against our strategic transformation agenda on slide two. In July last year, we laid out our vision for the transformation of Deutsche Bank. Our aim was to reposition the bank around what it has stood for over 150 years, the leading German bank with strong European roots and a global network. Our transformation was built around five key decisions. First, to exit businesses where we did not have a market-leading position by setting up a dedicated Capital Release Unit.

We have exited equities trading. We are in the process of transferring our prime finance operations and reduced assets in the Capital Release Unit by over EUR100 billion since 2018. We also resized our Rates business in the Investment Bank. Second, to create four core businesses with market-leading positions that are aligned to the needs of our clients. Together, these businesses make up our Core Bank. We made further progress on reshaping our core businesses this quarter, consistent with the plans we laid out at the Investor Deep Dive in December 2019. Third, to reduce costs. And here, we have made significant progress. Based on the annual run rate in the second quarter, we have reduced adjusted costs by EUR three billion since 2018. In other words, we have achieved 50% of our cost-reduction plans just 18 months into our 4-year program. We remain firmly on track to reach the EUR19.5 billion adjusted cost target for this year on the way to EUR17 billion in 2022. Fourth, to continue to invest in technology and controls despite the reductions in the overall cost base. Our commitment to spend EUR13 billion on technology between 2018 and 2022 remains unchanged. Our technology strategy includes the recently announced intended strategic partnership with Google.

This partnership aims to redefine how we develop and offer financial services and radically improve infrastructure efficiency. We also continue to invest in our control environment and improve our relationships with regulators. We believe that our investments have been recognized in the positive outcomes of recent regulatory stress tests such as CCAR and the ECB Liquidity Stress Test. Finally, we're committed to deliver our transformation within existing capital resources and prepare the ground for future distributions to shareholders. Since 2018, we have reduced risk-weighted assets in the Capital Release Unit by EUR30 billion, generating around 110 basis points of core Tier one capital. This capital generation has helped offset regulatory inflation and finance growth in the Core Bank. Execution on all five of these decisions is either in line with or, in some cases, even ahead of our internal plan. This disciplined execution is beginning to become visible in our financial result, as you can see on slide three. Our strategy is focused on improving sustainable profitability. That means generating positive operating leverage through a reduction of costs and growth in revenues. Operating leverage has been positive for three quarters in a row for both group and Core Bank, driving significant improvements in Core Bank profitability. Over the last 12 months, Core Bank adjusted profit before tax has grown by 18% to EUR3.1 billion. We are benefiting from discipline that we have instilled in managing our costs.

We have reduced adjusted costs excluding transformation charges and bank levies year-on-year for the 10th consecutive quarter. Core Bank profitability has enabled us to absorb the cost of derisking the CRU where the reduction of risk-weighted assets is running as we anticipated. As we make further progress with the wind down of the CRU, the underlying performance of the Core Bank should become more visible in our group results, and you can see that on slide four. Over the last 12 months, we have been able to largely offset the loss of revenues from the exit of equities trading and the derisking costs with growth in the Core Bank. Core Bank revenues of EUR23.7 billion over this period compare to the plan that we showed you at the Investor Deep Dive of EUR24.5 billion of revenues in 2022 as part of our 8% return on tangible equity target. This implies a revenue growth of 3% in total or an annual growth rate of around 2% from current levels. This growth is achievable when compared to the 5% growth that we have reported in the Core Bank in the last 12 months. And yes, there are pressures but also opportunities in the revenue environment. With the client momentum that we have created and the changes we have made to our businesses, we are confident of achieving these revenue plans for 2022 even when current market dynamics normalize. Let me turn to the next slide to give you some details why we remain confident on our revenue plans for 2022.

The Corporate Bank operates in an attractive return market despite headwinds from both COVID-19 and the interest rate environment. We have demonstrated that we can largely offset these headwinds with repricing and volume growth. At the end of the second quarter, we had charging agreements in place for approximately EUR50 billion of deposits. That is already ahead of our full year goal and is on track to contribute over EUR100 million of revenues on an annual basis. We have grown corporate cash transaction by 9% and loans by 1%. We have maintained good momentum in volume and fee growth with our platform clients, fintech and e-commerce clients. The Corporate Bank has been essential to supporting corporates including in Germany. Combining all the German government programs, we have been the most active bank in this space. We have already committed loans of EUR2.6 billion and have client requests worth more than EUR five billion in the pipeline. We also ranged syndicated KfW sponsored loans of a total volume of more than EUR8.5 billion. In the Investment Bank, our strategy is to focus on our core strengths. The actions that we have taken are paying off and faster than we expected helped by stronger market conditions. Overall, revenues in fixed income and currencies grew by 39% year-on-year. Our FICC trading business, excluding financing and specific items, was up by more than 75% versus Q2 2019. We achieved this performance with broadly stable levels of RWA, excluding regulatory inflation. This demonstrates efficient resource utilization and is enabled by a combination of prudent risk management and higher quality client flow. While the external market conditions positively impacted revenues, we are confident that the implementation of strategic initiatives across the FICC platform had a material effect and should allow us to deliver sustainable growth.

Refocusing the Investment Bank and exiting certain business has resulted in a much smaller negative halo effect than we had anticipated last year. Revenues in Origination & Advisory increased 73%, the largest year-on-year growth relative to peers who have reported to date, driven by greater client engagement to the highest levels we have seen in recent years. We continued to regain market share compared to the second half of last year in core German and European markets. In the Private Bank, we are focused on offsetting the pressure from negative interest rates with volume growth. Unsurprisingly, new consumer loans and investment products declined during the lockdown. But with the reopening toward the end of the second quarter, we are now seeing a rebound in volumes in some areas even tracking above last year. And in the second quarter, the Private Bank captured EUR five billion of net inflows in investment products and EUR three billion of net new client loans. In Asset Management, we are building on the momentum that DWS has generated. Inflows were EUR nine billion in the quarter. Assets under management, up by EUR45 billion in the quarter and EUR24 billion over the last 12 months. Asset Management also implemented further decisive cost measures in direct response to the COVID-19 environment. As we focus on improving profitability, we continue to manage our balance sheet conservatively.

As we announced last week, we ended the quarter with a CET1 ratio of 13.3%, as shown on slide six. This reflects lower loan balances driven by higher-than-expected repayments of credit facilities by clients initially drawn in reaction to COVID-19. In part, these facilities have been refinanced through debt capital markets instruments. Liquidity reserves of EUR232 billion are roughly 25% of our net balance sheet, comfortably above regulatory requirements. The solid capital and liquidity position gives us scope to continue to deploy resources to support clients in these challenging conditions. And our funding position has really been stronger than today. We fund our balance sheet through stable sources, predominantly low-cost deposits. We also remain focused on maintaining strong credit quality. Provisions for credit losses of EUR761 million in the quarter are consistent with our previous guidance and our full year outlook. This reflects our conservative underwriting standards and the low-risk nature of our loan book. As we have communicated before, our exposure to credit cards and other unsecured consumer lending is low relative to our international peers. Against this background, we confirm our guidance for full year provision for credit losses of 35 to 45 basis points of loans. Let us turn to the broader macroeconomic outlook on slide seven. We continue to expect a robust recovery in some of the major economies starting in the second half of this year, although it will take longer to return to the pre-COVID GDP levels.

The recently agreed EU stimulus package should further support the economic recovery in Europe, including our home market Germany, which accounts for around half of our loans. We are happy to have a leadership position in Europe's strongest economy which is proving its resilience. Germany came into the crisis with low levels of debt. The fiscal conservatism has allowed the government to take aggressive and decisive action in response. Germany benefits from a combination of an effective social security system, one of the largest loan and guarantee programs and EUR130 billion in stimulus packages. Economists, therefore, expect Germany to suffer less and to recover quicker than many other countries. Some recent indicators, including strong retail sales and a more optimistic business sentiment, even indicate that the German economy may outperform current forecast. This economic stability comes together with low levels of household and corporate debt, a historically stable housing market as well as good levels of corporate liquidity relative to other leading economies. Therefore, German companies and consumers are in a better position to weather the current environment. All of this contributes to resilience of our German loan book and to our expectations for lower provisions for credit losses in the second half of the year.

But of course, uncertainties will persist for the time being. We must not be complacent and have to continue to execute on our transformation agenda. slide eight shows you why I'm confident that we will continue to deliver. In the first half of the year, we have achieved all cost savings as planned. We were also able to absorb an unexpected burden of more than EUR100 million of bank levies. The progress of our transformation is also demonstrated by delivering on over 70 key milestones during the last quarter, all of which are closely monitored by the transformation office, which we created in the fourth quarter of last year. The transformation office not only ensures successful execution and delivery on our objectives but also facilitates a regular dialogue across the bank. The aim is to get even better and more efficient in the execution of our transformation initiatives. Across the bank, we currently have more than 60 such initiatives in flight. We made tangible progress with our transformation initiatives in the second quarter. We completed the German legal entity merger and announced the creation of our International Private Bank, integrating Wealth Management and PCB International. These measures are important steps in reaching our revenue plans and cost-reduction targets. In the Corporate Bank in Germany, we have completed the merger of Deutsche Bank and Postbank commercial businesses.

This allows us to reduce complexity, simplify processes and ultimately better serve our clients. In Asset Management, DWS has simplified its management structure to make the organization more client-centric and cost-effective. We've also made significant progress in transforming our infrastructure with the launch of a new IT platform in Italy and our planned partnership with Google. And while we are proud of these achievements, it is even more important that we are confident about our ability to continue delivering at this space. And I can tell you, we are. At the Investor Deep Dive in December, I discussed how we were seeing increased staff morale, and our recent people survey supports this trend. We see the best ratings ever for employee enablement and the highest commitment rating since 2012. With these results, we are in line with or above industry benchmarks for the first time in years. And this is the most solid foundation to continue delivering our transformation road map. 12 months ago, we launched fundamental changes to our bank. Since then, we have delivered on all dimensions of our strategic agenda. We not only kept the pace despite the unprecedented challenges of COVID-19, we also outperformed our own plan. This management team is absolutely committed to maintaining this cadence.

While we are fully focused on our plan, the pandemic will produce fundamental changes in the way we work and interact with clients, and we must take advantage of those. We remain convinced that we can achieve our 2022 financial targets. We are on track to execute against all our major strategic initiatives. We have a strong capital position and have proven our cost discipline. We are making considerable progress on the revenue side. We see positive momentum in all our businesses, which we can build on. With our capital strength, we have the potential to support clients in all business areas. Our accelerated digital transition further supports our 2022 financial targets. Sustainability is also of ever-growing importance for us and our clients, and this is being factored into our strategic planning. In short, we have managed through this crisis well to date. We are on track with our transformation. Our increased focus on our strength is paying off. We feel support from our clients, our staff and other stakeholders. We are determined to build on this momentum.

With that, let me hand over to James.

James von Moltke -- Chief Financial Officer

Thank you, Christian. Let me start with a summary of our financial performance in the second quarter on slide 10. Revenues increased by 1% as growth in the Core Bank offset the exit from Equities trading. Noninterest expenses of EUR5.4 billion included an additional EUR116 million of bank levies compared to the second quarter of last year as well as EUR445 million of restructuring and severance, litigation and transformation charges. Noninterest expenses in the prior year period included EUR one billion of goodwill impairments and EUR350 million of transformation charges. Provision for credit losses was EUR761 million or the equivalent of 69 basis points of loans on an annualized basis. We generated a pre-tax profit of EUR158 million or EUR419 million on an adjusted basis, excluding items detailed on slide 36 of the appendix. On this basis, the Core Bank generated a post-tax return on tangible equity of 4.3% in the second quarter and 5.1% in the half year. Tangible book value per share of EUR23.31 was slightly above the first quarter. Slide 11 updates a chart we showed you last quarter with the most material impacts of the COVID-19 pandemic. Results in the second quarter saw a more rapid normalization of some of these impacts than we originally expected, in particular, capital and liquidity reserves.

Incremental provision for loan losses related to COVID-19 were approximately EUR410 million, which I will discuss shortly. There was a positive impact of approximately 12 basis points on our CET1 ratio from COVID-19 this quarter. Increases in market risk RWA reflecting higher market volatility and higher credit risk RWA from ratings migrations were more than offset by several impacts. These included the repayment of credit facilities, lower derivative exposures and the reversal of most of the increase in prudent valuation adjustments recorded in the first quarter. The repayment of credit facilities increased liquidity reserves by EUR12 billion. And finally, Level three assets of EUR25 billion decreased by $2 billion in the quarter. The decline reflected the partial reversal of the first quarter migration of assets into Level three, which had resulted from the greater dispersion in market pricing at the end of the first quarter as well as reduced balance sheet-carrying values. Looking forward, the path of the pandemic remains uncertain, but we see the developments in the quarter as positive. Slide 12 shows how we have continued to support clients through the COVID-19 pandemic. It also highlights the number of different government and voluntary schemes in operation. Consistent with local regulations as well as industrywide programs, we've offered moratoria to a little over 100,000 customers with a gross loan balance of EUR nine billion. These moratoria have principally been in the Private Bank in Germany and Italy, and the associated balances are manageable in comparison to the EUR232 billion Private Bank loan portfolio.

To date, these moratoria have generated losses of approximately EUR seven million based on accounting adjustments to carrying values. Outside of the government and industrywide programs, we have agreed various voluntary forbearance measures on approximately EUR seven billion of loans with no material revenue impact. The forbearance measures on these loans do not trigger stage two or stage three migration as the borrowers are in good standing and the regulatory definition of default has not been met. We've also provided loans subject to public guarantee schemes to approximately 5,000 clients, mostly in the Corporate Bank, with a total drawn loan volume of EUR1.4 billion and a further EUR1.2 billion of undrawn commitments, both mainly with the KfW. In addition, we have requests in the pipeline worth over EUR five billion. Turning to provision for credit losses on slide 13. Provisions were EUR761 million in the quarter. As I just mentioned, a little over half or EUR410 million of the provisions relate to COVID-19 impacts. Approximately half of the COVID-19 provisions are against stage one and stage two credits with the remainder against stage three loans. stage one and two provisions reflect the weaker macroeconomic outlook relative to March 31, a management overlay to account for uncertainties in the outlook as well as downgrades to client credit ratings. Consistent with our guidance, Stage three provisions increased in the quarter and were mostly in the Investment Bank.

Including the provisions taken in the second quarter, we ended the period with EUR4.9 billion of allowance for loan losses, equivalent to 112 basis points of loans. Slide 14 updates a slide that Stuart Lewis presented at the Risk Deep Dive in June. It also makes adjustments in certain rating buckets to reflect changes in the probability of default for guarantees. As we described at the time, we deploy risk mitigants more actively in the lower-rated parts of the portfolio. These mitigants include collateral, guarantees, hedges and other structural risk measures, which act to reduce Loss Given Default. In single B and below, 75% of gross performing exposure is covered by risk mitigation, including asset collateral and hedges. The regulatory expected loss across the nondefaulted loan portfolio was broadly flat in the quarter at EUR1.3 billion. This compares to the EUR1.5 billion of allowances that we currently have in place against these exposures. This modeled analysis is further validated by the bottoms-up review of our portfolios. Loan exposure to the industries most impacted by the initial impacts of COVID-19 remained broadly stable during the quarter with modest reductions in retail and leisure portfolios through client paydowns. The outlook for commercial real estate and aviation remains challenging, given the economic backdrop and pronounced slowdown in travel.

That said, our outlook remains unchanged given the collateral underpinning these portfolios. We've made substantial progress on our underwriting pipeline, particularly in Leveraged Debt Capital Markets. Strong market demand has allowed us to reduce our LDCM underwriting portfolio by around 65% in the quarter. While the current environment is unprecedented, our historical performance has consistently demonstrated a low loss rate and conservative reserving assumptions. As a result, we feel well provisioned against potential losses. Turning to capital on slide 15. Our CET1 ratio was 13.3% at quarter end, 283 basis points above our regulatory requirement of 10.4%. The CET1 ratio increased by 42 basis points in the quarter. This includes approximately 12 basis points from COVID-19 effects I discussed earlier. Approximately 11 basis points of the ratio increase came from regulatory changes associated with the CRR2 quick fix. These changes included the application of the revised SME support factor as well as the first-time application of the IFRS nine transitional approach. Excluding COVID-19 and CRR2 quick fix impacts, we saw approximately 13 basis points of improvement from continued derisking in the Capital Release Unit. The Core Bank generated seven basis points, principally reflecting lower risk-weighted assets in the Investment Bank and Corporate Bank. Our leverage ratio was 4.2% at the end of the quarter, an increase of 20 basis points.

Approximately 16 basis points of the improvement came from the change to a net treatment of pending settlement payables and receivables. This change follows the implementation of the CRR2 quick fix and was an acceleration of a previously agreed rule change that would ordinarily have taken effect only from June 2021. This approach aligns Eurozone banks with long-established practice at U.S. banks and Swiss peers. Foreign exchange translation and Tier one capital movements contributed approximately five basis points. Excluding Central Bank cash from leverage exposure, consistent with the flexibility provided by the CRR2 quick fix would, if implemented, further increase our leverage ratio by approximately 20 basis points to 4.4%. Our strong capital position serves us well to support clients through the coming periods. The progress we are making on our transformation agenda is increasingly visible in our cost performance as shown on slide 16. In the second quarter, we reduced adjusted costs by EUR422 million or 8% year-on-year, excluding the impact of transformation charges detailed in the appendix. The decline in adjusted costs came despite absorbing an incremental EUR116 million of bank levies reflecting changes in input assumptions made by the Single Resolution Board. We reduced compensation and benefits expenses, in line with the reductions in internal workforce, and also benefited from a change in estimate related to certain deferred compensation awards. IT costs declined, reflecting lower amortization given the impairments taken in 2019, while our IT spend was broadly stable and within our target range as we continue our investment program.

We also reduced professional service fees as we further improved the efficiency of our external spend. Other costs declined, reflecting reductions across a number of areas, including occupancy. Adjusted costs included EUR92 million of expenses eligible for reimbursement associated with the Prime Finance platform and are, therefore, excluded from our target. With that, let's turn to our businesses, starting with the Corporate Bank on slide 18. Pretax profit in the Corporate Bank was EUR77 million in the quarter or EUR91 million, excluding transformation charges and restructuring and severance, which we detail in the appendix. This equates to a 1.6% post-tax return on tangible equity in the second quarter. Second quarter revenues of EUR1.3 billion increased by 3% year-on-year. Revenues were positively impacted by just over EUR100 million of episodic items, which we have discussed with you in previous calls. These items included reimbursement gains from credit protection, which also benefited net interest margin and are part of our regular business, as well as portfolio rebalancing actions. Excluding these episodic items, Corporate Bank revenues declined slightly as deposit repricing and balance sheet management initiatives were more than offset by interest rate headwinds. The Corporate Bank made progress executing against its strategic objectives. At the end of the second quarter, the Corporate Bank had charging agreements in place for approximately EUR50 billion of deposits.

Noninterest expenses were significantly lower year-on-year, principally reflecting the absence of a goodwill impairment in the prior year period. The current quarter included EUR81 million of litigation charges. Adjusted costs, excluding transformation charges, were essentially flat as management efforts to reduce noncompensation costs were offset by higher internal service cost allocations that we discussed with you in previous earnings calls. Provision for credit losses of EUR145 million in the quarter was mainly driven by the worsening macroeconomic outlook and a small number of single names, partly offset by a onetime benefit of a change in accounting for guarantees. Loans, leverage exposure and risk-weighted assets declined compared to the first quarter 2020, mainly reflecting client repayments of credit facilities. Turning to the Corporate Bank revenue performance by business on slide 19. Global transaction banking revenues increased by 4% on a reported basis. However, excluding the episodic items I just described, revenues declined slightly, principally reflecting the impact of interest rate cuts in the U.S. Cash management revenues declined and were impacted by interest rate headwinds, which were partly offset by deposit repricing and balance sheet management initiatives.

Trade finance and lending revenues were slightly higher, mainly reflecting credit loss recoveries. Trade flow and lending continued to perform well, but client activity in structured products was more subdued. Securities Services and Trust and Agency services revenues declined as a result of interest rate cuts in key markets. Commercial Banking revenues, excluding episodic items, declined slightly as interest rate headwinds offset growth in volumes and fee income. Turning to the Investment Bank on slide 20. We're pleased with the performance of the Investment Bank, which continues to build on the momentum we have seen since September 2019. Pretax profit in the Investment Bank was EUR956 million in the second quarter with a cost-to-income ratio of approximately 50%. This equates to a 12% post-tax return on tangible equity in the second quarter and 10% in the first half. The Investment Bank made significant progress on its strategic objectives as we work to reduce costs in technology and infrastructure support as well as grow revenues. The Investment Bank is on track to decommission the 30% of IT applications by the end of 2022 as communicated at the Investor Deep Dive in December as part of the ongoing technology investments. Revenues of EUR2.6 billion in the second quarter increased by 52% year-on-year, excluding specific items, driven by strong client flows and market conditions. Noninterest expenses of EUR1.3 billion declined by 14% year-on-year, in part reflecting the absence of litigation charges recorded in the prior year quarter.

Adjusted costs, excluding transformation charges, declined by 7%, reflecting benefits of the headcount reductions in 2019 and lower internal service cost allocations. Provision for credit losses of EUR363 million or 182 basis points of loans increased in the quarter driven by impairments related to COVID-19. Loans and leverage exposure increased versus last year driven in part by the higher client drawdowns in the first quarter. Revenues in Fixed Income Sales & Trading increased by 46% year-on-year, excluding specific items, as shown on slide 21. This is a strong performance across the franchise with all major businesses growing revenues versus prior year. Across rates, FX and emerging markets, revenues benefited from our refocused strategy that we laid out in December. We saw continued improvements in client engagement and strong growth in our institutional franchises. Rates revenues doubled from the prior year with strength across the complex specifically in Europe. Rates revenues have nearly doubled on a year-on-year basis in each of the last three quarters. Foreign exchange revenues were significantly higher, reflecting higher market volumes and strength in derivatives and electronic spot. Emerging markets revenues were higher in Asia driven by increased corporate and institutional client flows and the benefits of investments in the franchise. Revenues from credit trading increased with higher revenues and flow across all regions. Financing revenues were broadly flat year-on-year but have recovered well from the challenging market conditions in the first quarter. Revenues in Origination & Advisory increased by 73% as we continued to regain market share, most notably in our core German and European markets. Equity Origination revenues were significantly higher, reflecting higher market volumes, while M&A revenues were down significantly on a lower industry fee pool.

Growth in Debt Origination reflected higher market volumes as well as market share gains in investment grade. In Leveraged Debt Capital Markets, we have successfully derisked a majority of the commitment pipeline from the end of the first quarter. Slide 22 shows the results of the Private Bank. The Private Bank reported a pre-tax loss of EUR241 million in the quarter, including transformation charges, restructuring and severance and litigation. Private Bank revenues, excluding specific items related to the Sal. Oppenheim workout activities, declined by 5%. The Private Bank continues to execute on its strategic objectives, including the completion of the German legal entity merger, the alignment of digital venture activities, the creation of the International Private Bank and the implementation of a new core banking platform in Italy. Some of these items had a negative impact on revenues in the quarter but are key parts of our transformation strategy. Excluding these items, revenues declined by around 2% as headwinds from COVID-19 and ongoing deposit margin compression were partly offset by volume growth. With the reopening of our key markets, we're beginning to see a normalization of client activity. The Private Bank recorded EUR three billion of net new client loans and EUR five billion of net inflows into investment products in the quarter. Noninterest expenses declined by 15% year-on-year as the absence of a EUR545 million goodwill impairment recorded in the prior year period was only partly offset by higher restructuring and severance as well as litigation charges.

Adjusted costs, excluding transformation charges, declined by 4% as the benefits from reorganization measures more than offset the higher internal service cost allocations. Cost synergies related to the German merger were a further approximately EUR75 million in the second quarter. Year-to-date, we have generated approximately EUR145 million of synergies from the merger, and we remain on track to achieve our full year target. Provision for credit losses was EUR225 million or 39 basis points of loans, mainly driven by the updated macroeconomic outlook. Turning to revenues by business area on slide 23. Revenues in Germany declined by 5% and were burdened by impacts from the legal entity merger in Germany and a valuation adjustment on a digital venture investment. Revenues were also impacted by ongoing deposit margin compression and the COVID-19 pandemic, in part offset by growth in loan volumes and fee income. Private Bank Germany grew loans by EUR two billion with net inflows in investment products also of EUR two billion. Revenues in Private & Commercial Business International declined by 12% and were negatively impacted by COVID-19, principally in Italy and Spain, and a one-off rehedging charge in Italy as well as ongoing deposit margin compression. Wealth Management revenues declined by 1%.

The business continued to benefit from its growth investments, including hiring of relationship managers, which helped mitigate the revenue decline from ongoing interest rate headwinds as well as impacts from COVID-19. COVID-19 led to reduced client activity at the beginning of the quarter and lower market values reduced average assets under management. Net inflows and investment products were EUR three billion across emerging markets, Germany and the Americas. Wealth Management also grew lending volumes with net new client loans of EUR one billion in the quarter. Asset Management performed well in the challenging conditions, as you can see on slide 24. To remind you, the Asset Management segment includes certain items that are not part of the DWS stand-alone financials. Asset Management reported a pre-tax profit of EUR114 million, an increase of 27% year-on-year as management actions to reduce costs more than offset lower revenues. As a result, the divisional cost income ratio improved by six percentage points to 73%. Asset management revenues declined by 8% year-on-year, principally reflecting the absence of periodic performance fees recorded in the prior year. Management fees declined, largely reflecting the industrywide margin compression, offset by higher other revenues, which reflected lower funding cost allocations and a favorable change in the fair value of guarantees. Assets under management of EUR745 billion at quarter end have grown by EUR45 billion in the quarter and by EUR24 billion over the last 12 months. Net inflows were EUR nine billion in the quarter and offset the outflows seen at the end of the first quarter.

Net inflows in passives, cash and equities were partly offset by outflows in fixed income. Noninterest expenses declined 15% with adjusted costs, excluding transformation charges, down 13%. The reduction in costs was driven by lower carried interest related to performance fees as well as successful implementation of cost-efficiency initiatives. As shown on slide 25, Corporate & Other reported a pre-tax loss of EUR152 million in the quarter compared with a pre-tax profit of EUR101 million in the same period last year. The decline was principally driven by lower revenues from valuation and timing differences, reflecting the benefits in the prior year period of movements in cross-currency basis. Funding and liquidity charges also increased compared to the prior year quarter, consistent with the changes in funds transfer pricing we've discussed in previous calls. Let me now turn to the Capital Release Unit on slide 26. The Capital Release Unit recorded negative values revenues of EUR70 million or EUR47 million, excluding debt valuation adjustment in the quarter. Revenues were driven by derisking and hedging costs, partly offset by the reversal of previously incurred funding valuation adjustments and the Prime Finance cost recovery. We made further progress on reducing expenses in the Capital Release Unit. Noninterest expenses in the second quarter were 50% lower than in the prior year quarter, in part reflecting lower transformation charges. Excluding transformation charges and bank levies, adjusted costs declined by 38% year-on-year driven by lower internal service cost allocations, lower compensation costs as a result of headcount reductions and lower noncompensation costs.

Risk-weighted assets declined in the quarter as EUR three billion of derisking was partly offset by approximately EUR two billion of COVID-19-related increases in market risk RWA. In the first half of the year, the Capital Release Unit has derisked by around EUR five billion. Leverage exposure was lower driven by derisking, optimization and market movements. Over the last 12 months, the Capital Release Unit has reduced risk-weighted assets by EUR22 billion and leverage exposure by EUR147 billion. Looking forward, our year-end risk-weighted asset target of EUR38 billion remains unchanged. Given the market-driven increases seen in the first half, this implies a larger underlying reduction in the coming quarters than in our original plans. As management prioritizes risk-weighted asset reductions, we now see a slightly slower reduction in leverage exposure than previously anticipated in 2020. We expect to reduce leverage exposure by between EUR10 billion and EUR15 billion a quarter for the remainder of the year, subject to market movements. Our leverage exposure reduction targets for 2022 remain unchanged. Let me conclude with a few words on the outlook on slide 27. As Christian said, we successfully navigated the challenging environment this quarter. We made progress on the strategic priorities that we laid out at the Investor Deep Dive. Looking forward, we have updated the outlook statements in the interim report to reflect our current expectations for revenues this year, both at a group and business line level.

For the group, our revenue expectations are now marginally higher than our prior outlook, preliminary reflecting primarily reflecting the stronger-than-expected performance in the first half. Our current planning assumption is of a normalized investment banking revenue performance in the second half relative to the first, which should still deliver year-on-year growth. We also expect relatively stable performance in our other core businesses. We expect revenues in the Capital Release Unit to revert to the range that we outlined at the Investor Deep Dive. We remain on track to reach our EUR19.5 billion adjusted cost target, excluding transformation charges and the impact of the Prime Finance transfer. Consistent with Christian's earlier comments, we do believe that lessons from the COVID-19 pandemic may produce additional levers to reduce costs in the medium term. Neither these opportunities nor the required costs to achieve are included in our current outlook. In line with our prior guidance, we expect provisions for credit losses of 35 to 45 basis points of loans for the full year.

Our guidance implies provisions return to normalized levels in the second half of the year as higher Stage three provisions are offset by reductions in Stages one and two. We continue to expect EUR400 million of deferred tax asset valuation adjustments in the full year, of which only a small portion was reflected in the first half. On the CET1 ratio, a lot of uncertainty remains regarding the economic environment, client behavior and regulatory actions. That said, given where we ended the second quarter, we currently see significant room to continue supporting clients while maintaining the ratio above our 2022 target of 12.5%. In summary, we will continue the disciplined execution that you have seen from this management over the last two years. And our short-term outlook is consistent with our longer-term goals, principally a post-tax return on tangible equity of 8% in 2022.

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

James Rivett -- Head of Investor Relations

Thank you, James. Haley, let's now go to questions, if possible.

Questions and Answers:

Operator

[Operator Instructions] And the first question comes from the line of Christoph Blieffert of Commerzbank. Please go ahead.

Christoph Blieffert -- Commerzbank -- Analyst

Hey. Good afternoon. Two questions from my side, please. The first question is on the Corporate Bank. When you talk to your German corporate client base after the economy has reopened, what do you hear in terms of short- and long-term investment appetite as well as loan demand in general? And secondly, I know it's early days, but any indications about loan loss provisions in 2021 would be highly welcome. Thank you.

Christian Sewing -- Chief Executive Officer

Thanks, Christoph. I'll take the first question. Obviously, we are in close contact with, in particular, our German corporate clients. And actually, I have to say that this sentiment is a much better one, in particular, over the last four to six weeks than, obviously, we have seen it in April and May. I would even say that most of the Dutch CEOs but a lot of also the German family owned companies are actually have signaled a cautious optimism. We also see signs for a robust recovery in major economies in the second half of this year, although we all admit that it obviously takes some time that we return to the pre-COVID GDP levels. In particular, for Germany and to your questions investment and loan demand, there are a lot of indicators that retail sales but also the overall business sentiment indicates that the German economy may even outperform the current forecast and is recovering even faster than we initially thought. I think all the support programs, which have been set up by the government but also the most recent European stimulus program, helps in this regard. I personally and that is also mirrored by the German corporate heads. We always think in a 1/3, 1/3, 1/3 category. 1/3 of the German corporates are having the home market and the euro market in their mind in terms of growth, in terms of demand. And that is actually, as I said, recovering quite well.

Then we do see, actually, a strong recovery in China and in Asia. Actually, we believe that China is growing in 2020 despite the pandemic by 2%. And we can see that a lot of demand is actually coming now to the German corporates from China. The biggest question is actually at this point in time, the U.S., again standing for 1/3 of the production when you take an average for Germany. And hence, overall, you can see that for 2/3, there is quite optimism in the game, and that then also actually makes us confident that the sentiment for a balanced investment and, therefore, also demand for loans and credit facilities is there. And that actually we see in our business because, overall, in the first half year, we grew the corporate loans. We grew the commercial loans. Yes, we have seen some repayments of the initial drawdowns from end of March. But overall, I would say compared to eight weeks ago, quite a far more positive picture, though, obviously, most of my colleagues are obviously managing their company quite tactically these days because there is uncertainty left. With this, I hand over to James with regard to loan loss provision outlook.

James von Moltke -- Chief Financial Officer

Sure. Thank you, Christian. Look, there's a highly uncertain outlook out there, as you heard from us and other banks. In our guidance for this year, implicit is a normalization of CLP levels or somewhat normalization in the second half. And at least at the moment, given the economic outlook that we're working with, we would expect that environment more or less to carry over to 2021. So not the extremely favorable credit environment that we came out of in 2018 and 2019 but also not the very elevated environment that we found ourselves in the first half of 2020. Obviously, a lot depends on the path of the recovery from here. Another dip in expectations would clearly present some additional pressure in 2021. But by and large, our central case would be a continuation of moderate normalization into 2021.

Christoph Blieffert -- Commerzbank -- Analyst

Excellent. Thanks a lot.

Operator

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

Jernej Omahen -- Goldman Sachs -- Analyst

Good afternoon from my side as well. I'd like to ask two questions, please. So the first one, on the second quarter results, I don't want to take away from the very successful cost management and resilient revenues in this quarter, but the revenues for the industry this quarter were pretty much a record. And even with those record revenues, Deutsche lost money this quarter. And I was just wondering, I mean, as we go into the second half of the year and the usual seasonality, if nothing else kicks in, how what do you how do you assess your ability to sustain profitability into the third and the fourth quarter? And just as an aside, so I mean, yesterday, your supervisor issued the results of the vulnerability analysis and came to the conclusion that the outlook is so uncertain that they've asked banks to suspend all capital returns to shareholders for an additional period.

Listening to you and your positive outlook, I was just wondering, when do you think there the supervisor is getting it so extremely wrong in a way? And then the second question I have, Christian, I would like to go back to your AGM in your opening speech, which I thought was interesting. I think this was at the start of May. And I believe that you are the first of the large bank CEOs to explicitly talk about consolidation. And I believe you said something along the lines that consolidation in the European banking sector will happen that this is inevitable and that it must happen. And I was just wondering if you could give us some additional insight as to how you are thinking about time line for this consolidation to take place and the triggers that might start it. Thank you very much.

Christian Sewing -- Chief Executive Officer

Jernej, thanks a lot. And let me start, and I'm sure that James will add. First of all, on your profitability outlook for the year, potentially, we can put this a little bit into perspective. We started the largest transformation of Deutsche Bank over the last 20 years last year. We always said that we will have one and half years or six really key quarters where we do most of the restructuring. We have the restructuring costs. You have seen that most or 75% of our transformation costs have now been kind of done already. And we also said at the beginning of the year, pre-COVID, pre-COVID that we are that our ambition is not only the EUR19.5 billion goal in terms of costs, but that we are pre-tax breakeven. Then we are kind of affected and impacted by the hardest recession we have all seen since the Second World War with unprecedented issues, which we all did not experience. And this bank was not only profitable in Q1 but also profitable in Q2. And if you now look that this was a very good quarter for the Investment Bank, yes, I agree. But not only because of COVID because we have shown in January and in February but also in June, and the momentum is also good in July that even with normalized markets, we are actually convincing and getting additional flows and underlying client revenues in markets which are not that COVID impacted like, obviously, end of March, April and May.

And that we actually gain market share in those areas where we want to compete, where we think we have a leading market position. That actually makes us very confident that also in the second half of 2020 we will show revenues also in the investment bank, which are higher than in the second half of 2019. And that the underlying flow is not something which is only done because of COVID, but really which is evidencing the strength of Deutsche Bank. And if you then look at the underlying business, also the volume drivers in the Corporate Bank and in the Private Bank, we actually see the loan growth. We see the growth in assets under management in the Private Bank but obviously also in DWS. We see the disciplined execution on the cost side. And all that shows us that we are on the right track, and that with our goal of 2022 that we will end up and result in the sustainable profitability. So in this regard, I really would say that everything what we decided last year is actually confirmed in terms of right decision from a strategic point of view. And secondly, we are even ahead of the plan, which we have given ourselves despite affected by COVID. Second question on the consolidation. You know my view. I have said that by already two years ago that over medium term, I think that consolidation will come in Europe, but there are certain preconditions. That is the banking union. That is the capital markets union. We need, in my view, less banks in Europe in order to be competitive globally. And that comment from the AGM was nothing where I said this will happen short term, but that was my medium-term outlook for the European financial sector.

James von Moltke -- Chief Financial Officer

Just a couple of things to add. So if I think about the second half Jernej, it's James. We have nonrepetition of H1 pressures on the P&L. I'll start with the Single Resolution Fund contribution or assessment, which is EUR600 million. And we've outlined that we've that the COVID-related sort of excess credit loss provisions have run sort of EUR600 million, EUR700 million. And so as those the first of which will not repeat, and the second of which we expect to abate. So it gives you room to have the outperformance, if you like, in the Investment Bank retraced somewhat while preserving a path to profitability. And then as you said at the outset, we will continue to work on the expense trajectory that we've set so as to preserve the path toward our targets and goals for 2022. On the your point about the ECB and the announcements yesterday, look, we I think we've said quite consistently, we share the supervisor's objective of ensuring that the banking industry is in a position to support the economy, support clients through this crisis period, and that's certainly what we've been endeavoring to do. And that, therefore, we should all be mindful of how we manage capital through a stress environment. As we sit here today, the more extreme stress conditions are not present. But we agree with the impetus that we all need to be prepared for that. And we think we've demonstrated both in terms of portfolio quality, risk management and the ability, as you say, to manage through this period while remaining profitable on the pre-tax line, we don't see a reason in the current environment why that should change in the second half.

Jernej Omahen -- Goldman Sachs -- Analyst

Thanks a lot. Just maybe a short follow-up, James, if I may. So if I understand you correctly, essentially, you are budgeting on the assumption that the public health crisis gets better and there's no second lockdown,etc. And sitting as you are in Germany, I'm sure maybe things feel that way. But let me just ask you. Humor us. Let's say you're wrong, and let's say we go into Q3, Q4, and there is a second lockdown. What do you do then? Because you've left yourself with roughly 20 basis points of credit loss space for the second half of the year in order to meet your target.

James von Moltke -- Chief Financial Officer

Well, we provided guidance on credit loss provisions in Q1. We're three months later than where we were in April, and we are reaffirming the guidance. And we're telling you that today, we don't see anything in the outlook that would move us off that guidance. There's always going to be a degree of risk in there. One thing that I would tell you is we did increment the provision in the second quarter, as you'll see in our interim report. So we took the view that consensus might be a little bit too optimistic, given what we're seeing, particularly in the United States and, therefore, took the opportunity to increment our provisions. We think that's prudent. And to your point, in an environment like the one we're in, we need to be prepared for adverse outcomes. And that's essentially the message of the ECB, be prepared for adverse outcomes. But that doesn't mean that it needs to be the central case. And so we manage essentially the company with both cases very much in mind. The one other thing that we do want to emphasize, as we look to the capital position that we left the second quarter with is it does give us the ability to support clients as we've highlighted and also to manage through an additional stress period. I guess one last thing to add, Jernej. We would expect Christian gave some perspectives about the economic environment. I think it's unlikely from a public policy perspective that you'd see as severe a set of measures in going forward that would have the same degree of damage to the economy as authorities deal with the health crisis. So my guess is even in a "second wave," it wouldn't look that it wouldn't look like the first wave exactly.

Jernej Omahen -- Goldman Sachs -- Analyst

Thank you very much.

Operator

The next question is from Daniele Brupbacher of UBS. Please go ahead.

Daniele Brupbacher -- UBS -- Analyst

Yes. Thank you. Good afternoon. I mean you talked already quite a bit about the outlook for revenues and the IB specifically, and I guess, the key virtual normalization, but that you still expect an increase year-over-year. Would you be able already to share with us your key assumptions behind that, probably when it comes to market shares where you see gains in key areas and probably just overall industry revenues and probably the overall market environment, that would be helpful, so just the key assumptions behind that statement? And then secondly, on capital. I guess it's fair to say that there were some surprises in the quarter. That's also why you then gave that update a few days ago. Now how in a base case scenario, how do you think about the sort of underlying dynamics behind the full year outlook of the 12.5% in terms of underlying credit demand from clients, volatility, market risk, probably some regulatory changes? That would be helpful. And then just lastly, more of a numbers question then. I'm always struggling to forecast taxes and I mean, the tax rate was 65% in the first half. And then you did obviously mention the EUR400 million DTA revaluation, mostly in the second half. Could you just help us a bit in terms of modeling that for the second half and then probably the normalized tax rate going forward? If you could give us a guidance there, that would be helpful. Thank you.

Christian Sewing -- Chief Executive Officer

Daniele, let me start with the Investment Bank. And as you're rightly pointing out, some of that has already been said. I think why are we confident that in the second half of 2020 we beat the revenues versus the second half of 2019, it is clearly that we see that the investments and the focus on those business in the Investment Bank where we decided to play and to be a leading player that in those areas, we are performing. And in those areas, we simply see a greater client engagement, more demand. And again, this is not only COVID-related. If I, in particular, think about the FX business, if I think about the European rates business, if you look at our market share gains in the debt business, then this clearly shows. And again, also the pipeline transactions that I can see now for the third quarter, also looking at the first half of July, shows me that we are on a good track, actually, establishing this momentum long term. We can see that last year, when we obviously exited the equities businesses, we had perceived or we had an expected halo impact on the FICC business. That is after a year now in this new strategy, far less than we anticipated because clients are coming back and are still coming back and engaging with us. And hence, looking at those businesses where we decided to be active in, we see in almost all these business growth rates year-over-year, again, also now starting in July, which makes us comfortable and confident that we can beat last year's second half.

Daniele Brupbacher -- UBS -- Analyst

Okay. Thank you.

Christian Sewing -- Chief Executive Officer

Let me just add one more item. I think James said something very important with the capital ratio of 13.3%. Obviously, we also have now the capacity to use part of that in order to give it back to the businesses, that is, in particular, in the Investment Bank, but also in the Corporate Bank. And hence, it's not only the client demand, but the capacity of the bank to also provide the businesses with the resources is clearly there, and that will also help to boost the revenues.

James von Moltke -- Chief Financial Officer

Daniele, on the capital guidance, obviously, given the history we lived in the second quarter, we're going to be careful about the guidance we provide going forward with all kinds of caveats. But to Christian's point a moment ago, the we could certainly see credit risk RWA increase in the second half, make up a range by EUR five billion to EUR10 billion as we support clients through the stress period. Frankly, it may some of the paydowns in Q2 may be behavior that simply pushed sort of liquidity demand into the second half of the year. So we want to be prepared for that. That would represent a drawdown of in a broad range, perhaps 30 basis points, which is good and deliberate on our part. The other buckets that we talked about in the Risk Deep Dive, obviously, there's been a lot of movement. At this point, we would see the regulatory pressures as being broadly neutral in the for the balance of the year. You'll recall, there are some things we still have to get through, the NPE backstop, as an example.

And then there's some positive benefits that we're expecting such as the change in treatment of capitalized software. So all of that stuff probably neutral, maybe a little bit negative. And that depends, frankly, on how quickly the ECB sort of resumes its exams, letter writing, for example, in things like TRIM. And then finally, what is the COVID impact from here? And there, it's obviously the one is at least able to see. We've as you can tell, we've recovered much more quickly than we had thought in terms of the COVID impact going from net negative in the first quarter to net positive in the second quarter. We still see a wide range about that around that but could certainly see that being negative in the second half in terms of use of the balance sheet. And hence, all of that informs the guidance that we've provided. I've said before, we tend to be err on the conservative side. In some of our capital forecasting, we didn't intend for it to be quite this much in the quarter. But as Christian says, obviously, it puts us in a very good starting position to look toward the challenges of the second half.

Daniele Brupbacher -- UBS -- Analyst

Thank you, guys.

James von Moltke -- Chief Financial Officer

Thanks, Daniele, and quickly on taxes. Absolutely right, 65% in the first half. At a continued level of profitability around about where we've been in the first half, you'd probably see that continue. And what it reflects is profits in relatively high tax jurisdictions and the absence of tax benefits associated with losses in low tax jurisdictions or where we can no longer avail ourselves of tax shields on losses. You pointed out the DTA guidance that we've provided. So that would clearly change the effective tax rate to something almost meaningless. So I think you've got to add that on top of the 65%. And then the last piece is the forward guidance, we'd say is unchanged to as we continue to improve our pre-tax profitability. And these effects that are much more visible and also the permanent difference is much more visible at a very low level of pre-tax we should try we should start to converge toward the low end of the 30s. I think in the past, we've provided a range of sort of 30% to 32% as a normalized rate that we are working to achieve in the coming years.

Daniele Brupbacher -- UBS -- Analyst

Thank you. It's very clear. Thanks.

Operator

The next question is from Tom Hallett of KBW. Please go ahead. Mr. Hallett,your line is open. Please unmute your telephone. Yes, sorry. Hi, guys sorry. Just a couple of questions for me. Thanks for the additional color on the capital outlook. But can you provide an outlook on the credit risk migration and its impacts, please? And secondly, on provisions, 2/3 of this quarter's provisions were into Stage three, while peers are generally pointing toward the majority of provisions coming through Stage one and two. So is this just reflecting a view that not much will go wrong in 2020 and beyond? Or is this just do we just think about it as a mix difference and there was just no need for a reserve build in first half 2020? Thank you.

James von Moltke -- Chief Financial Officer

Thanks, Tom. Look, again, with all the caveats that I'm cautious about providing guidance because then we can be wrong. In our estimation, the ratings migration could be something between 10 and 20 basis points in the balance of the year. And that would be within what I described as the sort of COVID impacts. We'll obviously provide you updates, and hopefully that bucketing that we've been talking about is helpful to you in sort of conveying how we think about managing capital through this period. In terms of the staging, actually, we think it's pretty much in line with our expectations. So it's essentially 2/3 Stage three, 1/3 Stages one and two. And we would expect that now in the second half to become more sort of dominated by Stage three. So in the ordinary course of things, we would expect additional Stage three events to drive sort of provisions in Stage three, and those provisions would be offset by releases out of Stage two as credits migrate as well as the release of what we call forward-looking or reserves built on the basis of the forward-looking indicators. So this migration is what we expected to see and we'd again expect subject to all the caveats that to continue into the second half.

Tom Hallett -- KBW -- Analyst

Okay. Thank you.

Operator

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

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thanks very much. I've got two questions. One, still on provision and another one, actually, on the Private Bank. And maybe I'll start with the Private Bank performance. Could you just kind of remind us your end game for that business for kind of through 2021 and 2022? Because lots of things are going on and you kind of and you have a full list on the slide kind of 2022. It's the merger of the legal entities. It is your digital ventures. It is putting some parts of the bank of the kind of new IT platform. So a lot of moving parts. And of course, those moving parts are going to have an impact both on the revenue side and on the cost side. And I'm particularly and also, kind of within that question, could you give us your semi-vision of what you want to create with the International Private Bank? How do you see yourself competitively there now and where you want to kind of get to? Because this is a division where I can think that there's so many things kind of going on that it would be great to get that kind of slightly longer-term kind of outlook from you.

And my second question is really still on provisions. I'm sorry about that. But just about the context of what you see between 2020 and 2021. So of course, we discussed the fact that within your outlook, the provisioning in the second half is coming down quite significantly. And then you kind of thought the provisions may normalize even further kind of 2021. There is, for a moment, that absence of additional kind of model changes on COVID as well. But how do you think about 2021? I mean we are likely to see some of those tremendous support programs, the furlough programs, the short-term insurance kind of programs actually rolling off and also some of the underpaying to a corporate side as well. Does that worry you? Does that worry you that in 2021, we are likely to actually see what the real damage of what we've just gone through is actually looking like? Thank you.

James von Moltke -- Chief Financial Officer

Sure. Magdalena, it's James. I'll start with the provision discussion, and then Christian will talk to the PB question. Look, we have a path to walk on provisions. All of us in the industry do. I mean the starting point is the end of the moratoria and the possibility that, that creates a cliff. At this point, we don't see that cliff, but it's certainly a possibility. We do see the positive effects of fiscal and monetary support. And as that wanes, obviously, the hope and expectation is that underlying economic performance picks up, but there's a trajectory of GDP growth that means that households and corporates essentially were bridged through a very sharp recession by government action. And again, that's I think a reasonable central case as we sit here today. Now one thing to remember about the about fiscal support is that it only is ramping up now I'm sorry, monetary support is ramping up on, if you like, a monthly basis in Europe, so is still coming online. And the fiscal support, by and large, is while it's happening in market by markets nationally, some of the EU measures only come online next year. So there is still support, we think, for the economy into 2021.

So of course, all of that will play out into our provisions, in part through the Stage three events that I referred to a moment ago in response to Tom's question. And then, of course, there'll be ups and downs reflecting forward-looking indicators as that path changes over time. Again, all of it, as we see it today, is consistent with our core outlook. I would expect some of these sort of Stage three events, corporate defaults absolutely to continue into 2021 because some of the stress, for example, in the portfolios that we outlined as being the focused portfolios, there's no question that some of that stress will result in additional defaults. I guess one other thing just to note for you, we talk a lot about 2022 and our path to the 8% RoTE. If you like a silver lining of the very dark cloud that we've lived through is that I think the general expectation is that we'll be in an upswing, essentially a post-recession environment there. Our portfolios will have been pressure tested. So we can begin to look to 2022 with more confidence that we'll be in a lower CLP sort of economic growth environment even if there is another sort of wave that we have to live through.

Christian Sewing -- Chief Executive Officer

Magdalena, on the Private Bank and the action which you are referring to in Q2, let me a bit circle back to the Investor Day in December. We said that our goal and target is to have a Private Bank at the end of 2022 with a return on equity of between 10% and 11%. And the real drivers to get there were twofold. The revenue drivers, obviously, on this way to 10% to 11% or approximately 2% to 3% increase or maybe 2% to 3% of this journey. But the real issue to get there is a cost game. And the preparational work is, in particular, that what we have to do in 2020 and in 2021. And a lot of that, you have seen, and we are actually happy with the progress in the second quarter. It's not only the merger of the PFK with the Deutsche Bank AG, which obviously brings synergies in headcount but in central costs, but also the merger of the Private Banking International business with the Wealth Management business is, from a cost point of view, a very efficient one, but also actually gives us chances to further grow and to also offer to our private banking clients more what we, for instance, see in the Wealth Management. So it is all the preparatory work for our 2020 goal. Remember, we want to take out EUR one billion of costs in Private Bank Germany. That comes from the distribution channels. That comes from the merger I was just talking about. That comes from the retail IT where we made good progress. And we actually preponed that to get that ready by the end of 2021. So within the next 12 months, a lot of work will be done there in order to have one platform for the Postbank and Deutsche Bank Retail business. And then we have approximately EUR200 million to EUR300 million of cost reduction in the international business where this merger now helps. So we are completely on track to get the bulk of the drivers up to the 10% to 11% from the cost side. And a lot of work has been done in Q2.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thanks. Thank you very much.

Operator

The next question is from Piers Brown of HSBC. Please go ahead.

Piers Brown -- HSBC -- Analyst

Yes, good afternoon. Thanks for taking the question. Just a couple from me. I mean first of all, just going back to the revenue outlook, sorry to sort of belabor the point again, but I mean, impressive on the one sense, you're sticking to the 2022 goal, and we talked a lot about the expectation for the Investment Bank. I guess if we look outside of the Investment Bank, we've obviously got a declining revenue picture still in the three other divisions. And I just want to make sure I've got the right takeaway from the call. I mean it seems to me that what you're basically saying is there's a lot of stuff under the bonnet, which maybe we need to look at in terms of loan growth, client interaction, stats, find inflow, all sorts of metrics, which aren't yet evident in the revenue performance. So the question is just, is that the right way to be thinking about your sort of indication that, obviously, we're going to see an improvement from the declining picture we're currently seeing in those divisions? And the second question was on actually deposit charging. So you're up to about EUR60 billion of balances now in which you're charging for deposit holding. Just sort of interested, you've talked about now shifting on to smaller client balances. And how far do you think we can run on this in terms of the ultimate revenue impact? And how much aggregate balance may actually ultimately be subject to charging? Thanks very much.

Christian Sewing -- Chief Executive Officer

Well, let me start. I think you said it already right there. There is a lot of underlying good volume growth, which is exactly what we expected from the businesses outside the IB. If we really think about, for instance, the Private Bank in the second quarter, you see a 5% reduction of revenues. If you take out certain valuation adjustments, which we did, and really look at the underlying growth, yes, it was minus 1% to minus 2%, which is completely COVID-related. And if you take that out and if you look at the volume drivers now after the reopening of the economy in Germany, and I think we talked to that also in the prepared remarks, we can see actually that the volume is above 2019 level, be it on the investment side or be it on the credit growth and lending growth side, which is a good indicator that, actually, the underlying business is working well. Same actually accounts for the Corporate Bank. And on top of that, we are doing that what you were just saying. I mean we have already now achieved on the deposit repricing in the Corporate Bank a level which we wanted to achieve by year-end, but we achieved it after six months. So in total for the bank, we have repriced now EUR60 billion of deposits, EUR50 billion in the Corporate Bank, and we continue to do so. And I can't give you an exact number, but of course, it is something which is not only done by Deutsche Bank but which we see more and more in the market, and that means we will continue to do so because it's much needed to mitigate the headwinds of the negative interest rates. So you won't see us stopping here with all the track record, which we have gained over the last seven or eight months by doing this in such a disciplined way. I'm confident that we can reach even higher amounts which obviously then supports the top line.

Operator

The next question is from Nicolas Payen of Kepler Cheuvreux. Please go ahead.

Nicolas Payen -- Kepler Cheuvreux -- Analyst

Yes. Good afternoon. I have two questions on asset quality, please. The first one is regarding loan under forbearance and moratoria. Worry of assumption regarding credit quality of these loans, once the moratoria period is over. I mean in which stage buckets do you think or do you assume they will fall? And second one is regarding your Stage three loans coverage ratio. It has decreased quite significantly from 39% to 33%. What should we expect going forward regarding that ratio? Thank you.

James von Moltke -- Chief Financial Officer

Sure. Nicolas, hi, it's James. The I guess, quickly on both. We look very carefully, and we provided some details on the extent of loans subject to moratoria, voluntary or, if you like, statutory in our materials. And we're watching carefully to see whether those roll over into default. Right now, we're not seeing sort of behavior in clients that would suggest to us that the clients who were solving and whose businesses were strong precrisis after moratoria would be notably different in terms of credit quality, but it's something to watch carefully. I think secondly, with respect to the coverage ratios, we have seen as well that those are moving around. And it's based on the flows into the buckets of staging. And when you see you've seen one or two buckets where there are declines. What that's telling you is that loans with have moved into a bucket with a very low sort of loss given default or very high collateralization or other protections in the bucket. And so it's consistent with all the other kind of information we've given you and we discussed in the Risk Deep Dive. So the characteristics, if you like, of the migration will have an impact on the coverage ratios.

Operator

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

Kian Abouhossein -- JPMorgan -- Analyst

Yes. Thank you very much for taking my question. I got two questions. The first one is coming back to revenues. Clearly, you're roughly EUR2.4 billion higher than what consensus expecting on your target in 2022. And you talked about repricing, Christian, but I just wanted to maybe get a bit more of a top-down picture how we should think about revenue movement in the different division. Do you believe, for example, the Investment Bank can continue at that level of revenues that you're illustrating over the last four quarters as a run rate to get you additional 2% from the other divisions? Or is it more coming from the IB? Or is it the IB declining and there are certain things that you're doing to offset that? I'm just trying to get a little bit more of an understanding of EUR two billion, EUR2.5 billion almost of shortfall against consensus. And then the second question, it's a bit more cheeky, I have to admit. But if I look at M&A and consolidation and I look at in-market M&A in Germany, and I see a player that you have tried to merge with before, which doesn't have a management, some shareholders which seem to be, based on press, unhappy about the situation and a transaction that you can actually do in terms of numbers, why is now a good point or timing to revisit that?

James von Moltke -- Chief Financial Officer

So it's James. I'll jump in briefly on revenues. Christian may want to add, and then he'll speak to the second question. Look, we wanted to indicate with the LTM number, the EUR23.7 billion, the bridge to EUR24.5 billion two and half years from now is not as wide as I think is the perception externally. Completely agree, as I think Christian said in his comments, one can't expect the out performance that we saw in the first half. Admittedly, though, if we do achieve better performance in the Investment Bank in the second half, you'd actually see that LTM number increase a little bit and further narrow the gap to the EUR24.5 billion. Where that number will be in 2022, of course, is highly uncertain. But if, as we believe, we are seeing the signs of franchise improvement and hopefully, over time, some market share recovery, I don't think we would believe that everything would relative to our earlier assumptions would be retraced. In PB and CB, obviously, the environment has been more difficult than we might have thought 12 or 14 months ago. That said, each of those businesses are making tremendous progress executing against their strategies, as we described. And so while the path is perhaps a little steeper, the mix on a group level, perhaps a little different, we I think we've illustrated that we from what we can see now, it's an achievable gap. And finally, Asset Management, I think Tom, in an earlier question, looked at the revenue year-on-year revenue picture there. Last year had a sort of periodic performance fee in it. The underlying performance and frankly, drivers across all three of those businesses, loans, deposits, AUM, investment assets in the Private Bank have all been moving in the right direction. So we do see underlying driver of growth that can support the revenues in those businesses.

Christian Sewing -- Chief Executive Officer

Kian, and just potentially on the Investment Bank revenues, again, even if I repeat myself, but don't underestimate the underlying growth which is now bigger what we have seen over the last 12 months and take COVID out of the real day-to-day business in the FICC business but also in the O&A business because the halo impact from exiting the equity sales is far less than we have anticipated last year. And that simply brings us to a different level or a different foundation to plan off. So I really do think that a good part of the revenue outperformance in the Investment Bank is something very sustainable. On Commerzbank, you know my comment, and that is we have all hands full with our restructuring and with our transformation. We completely believe in our stand-alone plan. And whatever we are looking for and looking at must always be value-enhancing, must be incremental value-adding to our stand-alone plan. And as we are even outperforming our own plan for the time being, that is quite a high hurdle. So nothing to say more on that one.

Kian Abouhossein -- JPMorgan -- Analyst

Thank you very much.

Operator

The next question is from Adam Terelak of Mediobanca. Please go ahead.

Adam Terelak -- Mediobanca -- Analyst

Good afternoon. I had one on the loan book and then a follow-up on regulatory headwinds next year. On the loan book, it looks like loans in IB and the Corporate Bank are down beyond just the revolver paydowns. And just to know what that is and what the outlook is there. Clearly, you've said you've got balance sheet to play with going forward, but also what the revenue impact would look like. The Corporate Bank underlying revenues are down year-over-year despite deposit repricing. You've then got the revolvers paid down late in the quarter. I'm just thinking what the run rate revenues might look like into Q3 and how you feel about that in terms of Corporate Bank revenue sustainability. It feels like the pressures there are actually slightly higher when we start adjusting for these items. And then on capital and regulation, you flagged that it might be net neutral in the back end of the year with a couple of items coming through. In terms of TRIM, the ECB have quite clearly said that's going to start again. Could you size that in terms of what you're expecting for 2H out of the EUR30 billion in total for 2020 and 2021? And how much of that you're expecting to spill over to next year in terms of regulatory RWA pressures? Thank you.

James von Moltke -- Chief Financial Officer

Sure. Thanks, Adam. So look, the loan book is something that we're watching as well. I think it's a very good observation. There was paydown beyond the revolver draws. I think, as an example, trade was had come off over the course of the quarter. And of course, in the IB book, there has been a slowdown in new originations, and of course, there are paydowns, and there's also some distribution. My hope and expectation is that June 30 is sort of a low point, and hence, the statements you've heard from us about room on the balance sheet from a capital perspective. And there may have been features just in the point in time, frankly, that resulted in lower loan balances. On the optimistic side of the coin, just as you point out, we think that a resumption of loan growth lending at attractive spreads can be a growth driver. So the utilization of the balance sheet that we can afford can help us on the revenue side going forward. But as we've said, the general sort of deleveraging, if you like, of corporate balance sheets has been gone well beyond our expectations. In terms of the reg inflation stuff, TRIM was something that we did expect this year but did not come in. And of the 15 of inflation that moved into next year that you're referring to, and I think you asked about on the Risk Deep Dive call, that would be about six of that. Again, very uncertain because we don't know the final answer until we receive it, but if there was an estimate, that would be it. And that is not in the outlook that I provided of neutral. So when I said that there is a potential downside, it's basically that in our modeling.

Adam Terelak -- Mediobanca -- Analyst

Okay. So is it fair to say, though, some of the benefits in the quarter, but the end quarter capital ratio has potentially benefited more than the revenues would suggest?

James von Moltke -- Chief Financial Officer

It's hard to say. The net of the inflows and outflows, we don't think it was a major sort of downward pressure. In other words, the book rolls over slowly enough that on the asset side, I don't think that deleveraging had a significant impact on revenues in CB in the quarter. Hence, to your point, I think the importance of continuing to work with clients and seeing, frankly, the demand for loans start to recover and, in particular, trade recover. And in fact, if I go all the way back to the question earlier about what might be the difference between what the ECB is seeing as they think about addressing the stress environment versus what we're seeing is it is, in fact, loan demand. We don't feel like capital has been a constraint to supporting clients. It's been more in the second quarter. It's been more on the demand side. And if anything, therefore, the demand has been below what our expectations might have been. And there could be a catch-up in the second half, which would be supportive of revenues.

Adam Terelak -- Mediobanca -- Analyst

Great. Thank you.

James Rivett -- Head of Investor Relations

Haley, everyone else on the call, I think we're bumping up against the time. So apologies to the 10 of you left in the question queue. The Investor Relations team will reach out to you and try and answer your questions. Thank you very much, and we'll speak to you soon.

Operator

[Operator Closing Remarks]

Duration: 103 minutes

Call participants:

James Rivett -- Head of Investor Relations

Christian Sewing -- Chief Executive Officer

James von Moltke -- Chief Financial Officer

Christoph Blieffert -- Commerzbank -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Tom Hallett -- KBW -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Piers Brown -- HSBC -- Analyst

Nicolas Payen -- Kepler Cheuvreux -- Analyst

Kian Abouhossein -- JPMorgan -- Analyst

Adam Terelak -- Mediobanca -- Analyst

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