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Bloomberg Audio Studios Podcasts Radio News Diane here with Christian Saving, the CEO of Deutsche Bank. And before we get started, I want to say we booked this weeks ago, this was not necessarily booked to talk talk about the credit issues that are emerging to stave off any concerns that might be percolating out. But I do want to start there. This idea that this morning we're all focused on what are we missing? Have things gotten too frothy and have there been some issues of fraud or easy financing conditions? Do you see that anywhere in your book?
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Good morning, Lisa no, actually not. I mean, there is a lot of volatility in the market. We have seen that actually over the last weeks and months, whenever something is supposed to be, the market is reacting. In our books, I can tell you no, there is no deterioration. We have actually, we're very confident with our credit portfolio and that across the world, whether it's in Germany, whether it's in Europe, whether it's in the US in the different asset classes, corporate bank, private bank. And in this regard, I think the market is reacting quite heavily. But I think you always have to see it over over the long term. And so far, to be honest, I see no cred deterioration long term.
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Your shares are up more than 80% so far this year. So a couple of percent here or there is sort of, you know, okay, it's tough, but we can manage through it. I am just wondering, though, whether it's indicative of people's mood that people are looking for a reason to sell because they're getting nervous about how good things are getting and how far valuations have gone. Do you see that with any executives and the confidence that you're hearing from them in terms of what they're seeking to do or how much they're extending to planning to expand?
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No, actually, confidence is going to quite good. I mean, there's obviously always the risk in case of in case a recession would come, then obviously the confidence would go down. You would also see then a deterioration in the credit portfolio. But this is not a topic at all. Also, the whole week here in Washington, we haven't discussed the topic of recession at all. People are seeing growth, they're seeing employment. We talk a lot about what is happening in Germany and in Europe and how we can actually grow competitiveness and the economic output so therefore I wouldn't say that people are concerned, of course, the geopolitical uncertainties still, trade discussions, other, other issues are also dominating, dominating the the discussions. But I wouldn't say that there is a concern of the executives. We are watching the market, but there is nothing out where I would say people are concerned of a deterioration.
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Given the fact that there are so many uncertainties still outstanding, are you surprised by how much optimism you've been hearing?
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Yes, because we have talked for the last two years, given all the instabilities and uncertainties, when, when is actually a potential down, downturn in the markets coming. But again, there is a lot of liquidity in the market people. We have seen it, for instance, in the, in the second quarter when there was a stimulus program in Germany, how much liquidity came to Europe. And you see that really want to deploy their money. And therefore I think you always have to see if there is a slight decrease in market prices, liquidity immediately comes in again. And therefore I'm still optimistic actually that we are not talking about an overvaluation. We have some stretch valuations, no doubt, but I wouldn't say that the whole market is overvalued.
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Let's talk about Germany and European banks in general have been on a tear this year and it's been driven by this idea that maybe there will be deregulation and maybe there will be actual fiscal spending to support the region in. Are you seeing any actual tangible signs of deregulation that you think could unleash, whether it's bank mergers, whether it's just more dynamism in the European banking sector?
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Well, at least we have discussions. I mean, look, there are also some tangible items like the delay in the implementation of frtb. We have also in certain national buffers, when it comes to capital buffers, we, we have seen some movements of the national regulators, but also of the ec. I think we have a constructive discussion with the ecb. We are obviously talking about that. We, as European banks are demanding a level playing field. We see the developments here in the us we see developments in the UK and therefore I think there are constructive discussions with our regulators. So there is some movement nevertheless, I think it's not only about regulated regulation. I think the most important is how can we ensure that Europe overall, but also Germany is actually increasing the competitiveness and growth and therefore we need to do more on the structural reform side, which goes way beyond bank regulations. That is actually the topic which we need to push for because at the end of the day, regulation is important. We need to live a playing field. But the most important is the underlying growth. And therefore we need structural reforms in Europe.
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Is that fiscal spending? Are you saying that you hope that they increase it more and that you're already seeing stimulative effects from that?
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It's both. I personally think that the debt break alignment and adjustments which we have seen in Germany was the right step to do, but only doing this is not the right thing. Just increasing debt is not the right thing. What you need to do is in parallel work on structural reforms, that it makes sense for corporates, private individuals to invest. And that has all about to do with, you know, tackling the problem of energy prices in Germany, reducing bureaucracy, making sure that we are doing bigger investments into infrastructure, that the approvals for new investments are not taking that long as it did before. All that needs to be done. So aligning or just growing by stimulus program will not. Will not be sufficient. We need imperial structural reforms. And there I can see that actually the German government is taking the first steps.
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What about businesses? How much are businesses in Germany moving away from places like China in terms of sources of business? How much are you seeing those fissures just in the companies that you work with?
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Well, it's a result already of the COVID I think after Covid, people really thought far more about diversification. We can see that German corporates, European corporates are very active in diversifying their supply chains, their production chains, and, and are also trying to invest more globally and less concentrated. You can also see actually that business are confident actually to really reinvest in Germany. You may have heard about the initiative which is running in Germany, the Made for Germany initiative, where more than 100 corporates are actually committed to invest over 700 billion euros in Germany over the next three years. That shows actually that there is confidence in the business and at the same time that corporates are really redistributing the supply chains.
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Are you seeing any clients trying to shift away from dollar exposure right now?
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Look, there was clearly a trend in Q2 about reallocation. But I wouldn't join the core of saying, well, that is the end of the US dollar as the reserve currency. The US dollar will be the reserve currency. But I think that a lot of investors actually are trying to reallocate and in particular with what happened in the second quarter in Germany, but also in Europe, you could see a shift to Europe. And that's actually the momentum which we need to retain and where we need to build on.
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And this move away from the dollar has been largely in derivatives markets. I mean, how much has that just been on fire this year in terms of hedging any exposure to the dollar, not necessarily getting out of dollar denominated assets?
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Well, I think it's both. It's not only in the derivative market. We can, we really have seen real flows and therefore it has been, it has been a trend in Q2, it is a little bit reversing in Q3. And therefore it is so important in particular for Europe that they really continue with structural reforms. If this is not going through, if we are not continue with structural reforms, then obviously growth and therefore also the inflow in European assets will not further increase.
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How does that affect just whether there will be reforms or not? How does it affect where you want your footprint to be dominant?
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Right.
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Do you want to be more in Germany? Do you want to be more in the United States? Do you want to expand more in one place or another based on your faith, hope, etc. That there will be reform in Europe versus what actually is happening elsewhere?
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Look Lisa, for me it is that from, from a bank's point of view the most important is to be diversified. And we as Deutsche bank have taken a clear decision to be a global bank and to make sure that we are not too concentrated in any one of the regions. Of course, when you have your home market in Germany with 40% of the revenues, you have a great interest that this country is growing, that you have the right structural reforms, that fiscal stimulus is kicking in. But at the same time, despite all the talks about the end of globalization, globalization will not end. Globalization will be different going forward. But that means needs actually global banks with local know how and that is actually where we are focusing in from a Deutsche bank point of view stronghold market. But being an international player, because what we see from our clients, they would like to have a bank with an international exposure, with an international expertise and that with a global network. And that's exactly what we want to be so diversified and a global setup is I think the key to success.
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Are you interested in any acquisitions or is this going to be a very organic process going forward?
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It's a very organic process. Look, I'm very happy with the development which we have taken. You were just talking about our share price. I think overall the bank has done very well over the last three, four years. The turnaround has been completed and now it's really bringing the bank from a 10% RT to the next stage. All and all levers for that are levers which are, so to say within our own hands, it's about a better capital management, it's about focused growth, it's further about investing into technology to get further efficiencies out. All that is in our hands. And as long as I have the chance to further increase my return on equity with sort of say homework, that is always the preferred option.
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So not interested in any local banks that are nearby the that you might.
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Bring onto your look, as I said again, if you can focus on yourself, if you can improve your return on equity by applying this homework, honestly, it's always the first option.
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There's also a big question here about artificial intelligence and how much it's going to alter the size of the staff, the way of doing business going forward. Have you seen any material changes or advantages from using and adopting artificial intelligence of late that have really materially improved profitability or decreased off?
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Well, we have many use cases and you can apply that across the bank. And the interesting part is it actually, it actually applies to revenues, I.e. customer satisfaction, interaction with clients. It applies to efficiency and cost management. And also it applies to something which is very important for banks control and regulatory compliance. And in each of these three areas we have seen great use cases. If you think about also our research department, they started actually applying AI. If you think about the precision of research reports with the help of AI got far better. Of course that has an impact in terms of the speed and turnaround of research reports. Same actually in other areas. When you think about operations, the way we can apply AI. Now, the real important thing is now that we have a structured approach to all these use cases and that we have a clear priority. Where do we prioritize it first? Because you can imagine that everybody in this bank wants to apply now. We need to have a clear priority of investments. But I think it will be a game changer going forward and it will be one of the key levers how to increase profitability of banks.
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Christian Saving, thank you so much for being with us this morning. Christian Saving there of Deutsche bank, the CEO here in New York and John, it really is a tale for the Europeans of looking to what levers can be pulled going forward given some of the concerns and challenges facing the region. Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.
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And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics, and international relations.
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