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Good morning, ladies and gentlemen, and welcome to the Commerzbank AG Conference Call.Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay on the Internet. [Operator Instructions]Let me now turn the floor over to Stephan Engels.
Good morning, ladies and gentlemen. Welcome to Commerzbank's Second Quarter 2018 Conference Call.We are, step by step, moving forward with the execution of Commerzbank 4.0 and have delivered further milestones. We reached an agreement with Société Générale for the sale of the EMC business. With this transaction, we capitalize on our strengths by refocusing on our core businesses. In the first half of the year, we have progressed well on our growth path with net new customers and associated asset acquisitions in both PSBC and Corporate Clients. Benefiting from almost 800,000 net new customers in PSBC Germany since the launch of Commerzbank 4.0 and our comprehensive advisory offering, assets under control in PSB Germany are already at our 2018 year-end target. As of the end of June, they stood at EUR 386 billion. This is a year-on-year increase of more than 8%, thanks to contributions from all 3 product categories. In Corporate Clients net new customer growth continues, in particular with smaller SMEs. Since January 2016, we have added almost 7,500 net new clients, thousands of which in the last quarter. This is ahead of our 2018 interim target. Confirming our belief that customer growth results in higher volumes, our new key execution indicator loan volume corporates has grown by around EUR 3 billion last quarter, in part thanks to larger short-term acquisition financings.On our way to achieve 65% by year-end, our digitalization ratio has increased to 56% at the end of H1. To date, we have finished 3 journeys in the Digital Campus, including most recently our digital customer archive.At this point of our second strategy implementation year, we are able to report an operating result for the first 6 months of EUR 689 million. This is EUR 184 million higher than last year. Reflecting our growth initiatives and ongoing optimizations in the nonoperating segments, we managed to grow underlying revenues by 4% year-on-year to EUR 4.5 billion. Half year expenses of EUR 3.7 billion include the European bank levy booked in Q1; project execution costs, for example, for the EMC transaction. In addition, total costs reflect our ongoing high investments for the implementation of Commerzbank 4.0, as previously guided.A H1 risk result of minus EUR 161 million has benefited from a continuously benign credit environment and a well-marked shipping book. Our healthy risk profile is also underscored by an again lower NPL ratio of only 0.9%.Our balance sheet remained strong. The Core Tier 1 ratio stood at 13% at the end of June, including EUR 0.10 per share dividend accrual. The 30 basis point decrease quarter-on-quarter is due to EUR 6 billion higher credit RWAs. This is driven by targeted loan growth in PSBC and Corporate Clients as well as some FX effects. The leverage ratio stood at 4.5% and forms no constraint to our growth ambition.Let me highlight that Moody's announced several positive rating changes for Commerzbank end of last week. These include our improved stand-alone financial strengths. The upgrade of our issuer counterparty and deposit rating to A1 is a positive tailwind to our funding cost and pricing competitiveness.As you have all seen the details of our announcement at the beginning of July, let me only summarize the key messages on the sale of EMC. The agreement reached with Société Générale is an essential step on our path to implement Commerzbank 4.0. In executing this deal, we will improve the focus on our core business and enhance operating efficiencies by significantly reducing the bank's overall complexity. While the transaction remains subject to the approval of relevant authorities and employee representative committees, we aim to sign the purchase agreement around year-end. Following the gradual portfolio transfers, revenue are expected to fade out throughout 2019. Until year-end 2020, we are confident to achieve cost reductions of at least EUR 200 million by decommissioning the business. While this transaction structure comes with much higher and faster overall cost benefits than the originally discussed IPO, its execution requires further project costs. Once we will have successfully managed through this process, I would not rule out further cost-cutting potential by reducing associated infrastructure and processes.Let me talk you through our financial results.While Slide 4 provides an overview of our key financial figures at a glance, Slide 5 shows that the impact from exceptional revenue items has been very limited in the first half. Positive and negative items almost offset each other, which result in only EUR 19 million positive one-offs year-to-date.Supported by growth initiatives across our businesses, clean revenues in PSBC have increased by EUR 116 million year-on-year. Reflecting ongoing investments as well as higher risk result driven by the consumer loan business and mBank, the operating profit stood at EUR 171 million in Q2. Despite pricing competition, clean revenues have been stable in Corporate Clients Q2-on-Q2. With higher costs, including the EMC execution, the operating profit for the segment was EUR 212 million in the second quarter.In ACR the operating profit amounted to positive EUR 58 million in Q2. The significant improvement compared to last year is part due to a falling cost base and positive valuation effects but mainly due to our decision to mark the shipping portfolio in line with our transaction experience. The operating result of Others and Consolidation amounted to minus EUR 52 million in the second quarter. Based on the first 6 months of the year, we are improving our run rate guidance to around minus EUR 75 million operating profit per quarter.To continue with Slide 7, which shows the development of the group P&L. Based on a significantly better risk result and underlying revenue growth of EUR 180 million versus H1 '17, the group operating profit stood at EUR 689 million for the first half of the year. This compares to EUR 505 million a year ago.Taking a closer look at revenue trends. Q2-on-Q2, clean revenues have improved by EUR 146 million, driven by an NII increase of EUR 177 million, EUR 124 million of which come from consumer finance. Unlike in H1 2017 when we received upfront fees booked in net commission income, we have earned net interest income in H1 2018. When netting both line items, our decision to carry out the consumer loan business on our own balance sheet has contributed EUR 65 million to underlying revenues. With higher minorities of EUR 57 million, due to a gain on the sale of mBank's insurance business in Q1, and a low tax rate of 14% in the first half, the H1 net result came out at EUR 533 million.For the full year, we expect an IFRS tax ratio closer to the one we had in the second quarter, which means at the lower end of the normalized run rate range of 25% to 30%.Slide 8 gives an update on our cost development. In the first half of our second transformation year, total expenses amounted to EUR 3.7 billion, of which Q2 contributed EUR 1.7 billion. As much as it follows our guidance of a continued high pace of investments in H1, also the execution of larger projects, such as the sale of EMC, yet again higher compulsory contributions and persisting regulatory and compliance requirements explain why half year expenses are EUR 101 million higher than H1 '17. Having said that, we keep on investing in Commerzbank 4.0 as a prerequisite to execute our cost-cutting measures. One important element is our sourcing effort, which we have intensified. After the transition period that allows for a smooth transfer of processes and know-how, sourcing leads to significant cost savings per FTE. Compared to the first half of 2017, personnel expenses are down by more than 4% versus flat costs a year ago.What is my overall assessment on the cost development at the middle of our second transformation year? In line with our strategy to grow, streamline and digitize the bank, we believe the current phase of strategy implementation requires us to invest at high levels. Considering these investment activities, regulatory contribution and costs for additional projects such as EMC, we have slightly adjusted our cost target for the full year 2018 to around EUR 7.1 billion. Obviously this includes additional expenses from comdirect, reinvesting some of the ebase proceeds into growth and technology. And to be very clear: We are convinced, with our measures to achieve efficiency gains and FTE reductions, to deliver on our committed and unchanged 2020 cost target of EUR 6.5 billion.Moving on with Slide 9 and our risk result. Benefiting from the high quality of our loan book, Commerzbank's risk profile remains very healthy. Supported by write-backs, the H1 risk result amounts to minus EUR 161 million. Going through the segmental trends shows that, with a well-marked shipping -- with a well-marked Ship Finance exposure, ACR suffered no risk losses in H1. The segment rather benefited from write-backs in the Commercial Real Estate portfolio. The increase in the PSBC risk result to minus EUR 70 million in Q2 reflects higher cost of risk at mBank and consumer loans held on our own balance sheet.Let me highlight that, in the first half of the year, we have not experienced unforeseeable larger credit events, with significant front-loaded provisioning under IFRS 9. Assuming this does not change in the second half and trade conflicts are not intensifying, we believe that the full year risk result should end up with less than EUR 500 million.Let's carry on with the operating segments and start with Private and Small Business Customers on the next 2 slides.In H1, we have added 145,000 net new customers, which brings the total to almost 800,000 since October 2016. Admittedly below the targeted run rate for 2018, this reflects our view that investment in growth should lead to higher profitability. Therefore, we do not always compete with higher incentives elsewhere and have focused on the spend-effective online channel of comdirect. With our comprehensive advisory offering, we remain focused on converting customer growth into higher volumes and ultimately higher revenue. By way of demonstration, loan and deposit volumes in Germany are up by 13 billion year-to-date. Net new inflows in security accounts amount to 3.3 billion over the same period. As this has been more than offset by the decline of the relevant equity indices, assets under control have grown by EUR 10 billion to a total of EUR 386 billion. With that, we have already achieved our year-end target.To drill a bit deeper into loan dynamics. Year-to-date, we have grown the loan book in PSBC Germany by EUR 5 billion, more than EUR 3 billion of which stems from our mortgage business which continues to be very robust. At the end of June, it stood at a total of EUR 72.4 billion. Confirming our position that we will not chase business at any price, we have written slightly lower new mortgage volumes in Q2. Despite strong competition, this came with higher margin flow.During market launch of our own consumer finance product, we have focused on businesses at the better end of the risk spectrum to gain further experience. This resulted in a lower gross margin, compared to the transferred book, but came with a well-balanced risk-return profile. With more offerings in the pipeline, new sales volumes in the consumer finance are up by 6% quarter-on-quarter, while the total book stood at EUR 3.5 billion. Benefiting from our growth initiatives, including the change in operating model in the consumer finance setup, we are able to report EUR 160 million higher underlying revenues, versus the first half last year. As mentioned earlier, our decision to carry out the consumer loan business on our own balance sheet has had a positive impact of EUR 65 million.Reflecting the ongoing growth path of our 2 digital hubs, half year clean revenues of mBank and comdirect have increased by EUR 48 million. Driven by higher margins and volume growth, mBank's net interest income has grown by EUR 31 million. Also, Commerz Real has seen growth across businesses, benefiting from a healthy real estate market.To sum up PSBC. The operating result was EUR 373 million in H1, EUR 171 million of which in the second quarter. This includes continued investments in digitalization and growth as well as the implementation of regulatory requirements.Slides 12 and 13 provide an update of Corporate Clients, which continued to operate in a challenging environment with continuous pressure on margins. Also, macroeconomic uncertainties, including trade disputes and sanctions, are weighing on the overall sentiment. However, our market-leading position gives us the opportunity to compensate for this.At the top of our agenda is to maintain our position as the #1 bank for German corporates. This effort is closely tracked by our segmental key execution indicators, which are well on track. As mentioned before, customer growth is already above year-end targets, with 7,500 net new customers since January 2016. Close to year-end target is the new key execution indicator loan volume corporates. Demonstrating our commitment to increase the loan book with Mittelstand and International Corporates, the indicator stood at EUR 80 billion in the second quarter. This was supported by larger acquisition financing transactions. Financial institutions have increased their loan book, in particular in Asia. This fits well with our recently signed memorandum of understanding with the Chinese ICBC bank to support Belt and Road-related projects. These include corporate finance and trade products. Thanks to the growing loan portfolio and our stringent management of deposit, the loan-to-deposit ratio of Corporate Clients has increased to 117%, which is in line with our target corridor.With further loan growth to mitigate margin pressure, Q2 revenues in Mittelstand were stable quarter-on-quarter, while International Corporates has achieved higher revenues benefiting from acquisition financings. As part of their mandate to manage nonstrategic businesses, Credit Portfolio Management has executed a larger transaction in Q2 that supported revenues in the subsegment other.While our growth initiatives have delivered first positive revenue contribution, more time is needed to see the full impact. And that is why underlying revenues in Corporate Clients seem no longer achievable in 2018.Finally on segments, please turn to Slide 14 to have a look at ACR. The value-preserving run-down of portfolios continues across all subsegments, with an overall reduction of exposure at default by EUR 5.4 billion year-on-year. This reduction of more than 1/3 was supported by IFRS 9 effects. Benefiting from successful transactions, the group-wide Ship Finance portfolio has even decreased by 2/3, with only EUR 1.4 billion exposure at default remaining.While the run-down reduces interest income over time, overall revenues have benefited from positive hedging and valuation adjustments in Q2. With the positive risk result, the operating profit stood at EUR 58 million in Q2 after EUR 18 million in Q1. This fits to our guidance that ACR should no longer weigh on group profitability.Continuing with RWAs and Core Tier 1 capital on Slide 15. At the end of June, group risk RWAs were at EUR 176 billion. While market and operational risk RWAs have developed stable, credit risk RWAs have increased by EUR 6 billion quarter-on-quarter, EUR 5 billion of which follows our strategy to grow the loan book in our core segments. In addition, it reflects temporarily larger short-term exposures over quarter end. After having benefited from the FX movements last year, FX effects this quarter add another EUR 1 billion of credit RWAs. On Page 29, in the appendix, we provide a detailed breakdown of foreign currency RWAs and their impact on the capital position.With minor movements of regulatory capital deductions and retained earnings incorporating EUR 0.10 per share dividend accrual, capital added around 10 basis points to the Core Tier 1 ratio. As this has been overcompensated by the mentioned RWA effects, our ratio stood at 13% at the end of June. Finally on capital, let me confirm that our year-end Core Tier 1 ratio target of at least 13% remains unchanged.Ladies and gentlemen, let me wrap up.The last quarter demonstrates that we are moving forward with the execution of our strategy, in line with our plan. With still a lot on our agenda, this includes tangible progress in simplifying and digitizing the bank. Our growth path continues with net new customer additions in PSBC and Corporate Clients. Both assets under control in PSBC Germany and loan volumes in Corporate Clients have increased, well in line with our targets. This forms the basis for underlying -- higher underlying revenues and an improved operating result. However, it will take more time to see the full impact of our growth initiatives, in particular in Corporate Finance.While we are facing regulatory burdens, we continue to invest in Commerzbank 4.0. This has shown its impact on our costs.To conclude, I would like to provide you with our outlook for 2018. We expect higher underlying revenues in PSBC and the group. While we are implementing proper mitigation measures, higher underlying revenues in Corporate Clients seem no longer achievable in 2018. Considering our investment activities, regulatory contribution and project costs, we have slightly adjusted our cost target to around EUR 7.1 billion. Our 2020 group cost target remains unchanged, at EUR 6.5 billion. Assuming no intensification of trade conflicts or unforeseeable larger credit events with significant front-loaded provisioning under IFRS 9, we now expect a full year risk result of less than EUR 500 million.Finally on our outlook. We aim to pay EUR 0.20 per share dividend for the fiscal year 2018 and have accrued accordingly in the first half.Thank you very much for your attention today. I'm now happy to take your questions.
[Operator Instructions] And our first question comes from Benjamin Goy, who's calling from Deutsche Bank.
A couple of questions from my side. Maybe first, on costs. So maybe you can give some more detail what has really changed in 2018, because some of the regulatory core projects and also the EMC sale, I guess, were known also at the beginning of the year. And secondly, Corporate Clients. So you said some shorter-term acquisition finance, it was held. It wasn't really visible in the revenues, so should we expect some more positive impact out of that asset and RWA growth in the second half of the year? And then the third question is on project Copernicus. So just wondering about your considerations why you need a third bank in Germany. And anything you can say on that?
Yes. Maybe again to sum up what has been said on the cost side. First is that, in H1 2018, we have always said that we would keep on investing at a higher pace on our digitalization. This is what you can see and which is the base movement that we have. Secondly, we have again seen slightly higher banking fees and other stuff. Thirdly, as you have seen, comdirect has most likely a gain from the sale of ebase and will invest part of that also into new business and growth. And as mentioned before, EMC, yes, the project was clearly on the agenda for 2018, 2019, but now been coming a bit faster and a bit quicker than originally anticipated in the IPO model. So all these little, you can call it, small, tiny bits and pieces, adds to the cost numbers. And that is why we have slightly adjusted to the EUR 7.1 billion. Corporate Clients: The amount of RWAs that stem from these, let's say, temporary short-term acquisition financings, is roughly EUR 1 billion. A part of the revenue has been seen already in Q2, as far as it has been up from fees. And in that sense, the positive movement on the RWA efficiency is also partly owed a bit to these developments. And Copernicus, at this time, is, if you want, another project where we try to explore possibilities, but we haven't taken any decisions.
And the next question comes from Johannes Thormann calling from HSBC.
Johannes Thormann, HSBC. Also 3 questions, if I may. First of all, I have to come back to costs. And we now see your guidance for EUR 7.1 million (sic) [ EUR 7.1 billion ], but the market [ cap in ] your cost guidance for 2020 of EUR 6.5 billion is increasing. What is -- probably you can explain this, how you want to step down to 2020, how you see 2019 cost developing that -- and that you can provide us probably with a bridge already what could leads to this lower cost in 2020 of EUR 6.5 billion. Secondly, risk provision in PSBC. Is this a new run rate we should expect? What has been driving the strong increase from Q1 to Q2? And last but not least, coming to the good news, your NII: Is this a good run rate for the next quarters? Or what do you expect in terms of NII contribution from your businesses in the next quarters?
Yes. Maybe a very quick and easy cost bridge on the EUR 7.1 billion to the EUR 6.5 billion. If you look at the targeted numbers on FTEs, we are currently at 41,000. We will end up at 36,000, so that roughly produces a EUR 500 million cost relief. Add EUR 200 million for EMC, you have EUR 700 million. So you add EUR 6.4 million, which means that you have roughly EUR 100 million for additional cost inflation and depreciation probably moving up as well. And then you have sourcing as one of the elements that may balance out one or the other unexpected movements. The risk cost in PSBC, you need to keep in mind that is including mBank. And in mBank, we have seen slightly higher costs, risk costs, in Q2, which is the main driver. The trends in PSBC as such, as I said, are stable. If you compare to a year ago, you need to keep in mind that we now have the consumer finance fully onboard, and that under IFRS 9 we have a slightly different booking logic, so to speak. NII, as I said, on -- in general terms, the Q2 should provide a reasonable basis for looking into the following quarters.
Next up, we have Giulia Miotto calling from Morgan Stanley.
A couple of questions from me, please. Looking at the PSBC customer acquisition. So year-to-date, you have acquired 150,000 versus, in theory, a pro rata target of 250, if you want to achieve the 2 million. So I was wondering, can you please provide us with an update on the strategy here? What are you seeing, so far, in Q3? And how are you thinking about the 2 million target and the related revenues associated with it by 2020? And then the second question, around consumer finance. So this seems to drive, obviously, a positive momentum in your revenues and NII, which is positive, but if I look at the loan and -- the loan book, it's still EUR 3.5 billion, as it was in last quarter, if I'm not mistaken. So I was wondering, what's missing for having -- for seeing some growth here?
Yes, I will -- consumer acquisition indeed. And as what I've said, we are admittedly a little bit behind what you would see as the, let's say, linear trajectory. In Q2, despite the issues that I've mentioned, price competition, a lot of other market participants have prepared themselves, obviously, for our perceived push together with the football championship. 2 things to that: one is we haven't spent as much money in Q2 on that, that we probably would have done had the German national team been a bit luckier, let me put it this way. And in general, the EUR 2 million target is fully on our target list. Let's see what Q3 and Q4 can do. And then again, until 2020, there is still '19 and '20 to go for. Consumer finance book at EUR 3.5 billion was slightly lower at -- in Q1. That's what I've mentioned as well. What we have seen here is mainly a starting phase, where we want to make sure that we don't catch a bad business. That is why we have, as I've said, targeted the better risk part -- or the better risk-return part of the book, slightly lower gross margins, but risk adjusted. I think we have been pretty well positioned, so starting from that and the increase in offerings, I'm still pretty much optimistic that we can grow this business over time further.
The next question comes from Britta Schmidt, who's calling from Autonomous Research.
I've got 2 questions, please. The first one will be on the fees in PSBC. There was some decent volume growth in the securities volume Q-on-Q. And the customer loan growth was slightly, let's say, below the linear trends. I would expect that the related fee expenses to be lower, but despite that, the fee income in Q2 in PSBC looked a little weak. Can you give us perhaps some insight into what's been driving that? And then secondly, coming back to the cost base, you've provided a clear bridge from 2018 to 2020, but the bridge didn't include costs falling away for digital, so shall we assume that these are not necessarily just front-loaded costs, but some of those will be recurring over the planning horizon?
Fees, PSBC, I think there is 2 little bits to the answer. One is in -- if you compare to previous year, the fee income still included the front-loaded commissions from CFG, from the Ulrich joint venture. On consumer finance, in general, the first half '18 has obviously been impacted also a bit by MiFID. And the indices that went a bit down have reduced volumes, which then in turn have reduced fees also a bit. Indeed I didn't mention the IT investments going down. Nevertheless, that is still the plan. That will, in terms of P&L, have a more -- a mitigating effect on the growing of the depreciation, rather than you will see too much of that directly in the P&L. But in general, as we have said, H1 '18 as well as H2 '17, are the years -- or the phases where we invest and drive most of the projects.
Next up, we have Tobias Lukesch, who's calling from Kepler Cheuvreux.
Three questions from my side as well, if I may. Firstly, could you please elaborate on the impact of the equensWorldline deal? What will it cost you and, at the same time, save you? I understand that the alternative would have been to develop a tool in house, as most of the German banks did. And secondly, on your LM or the investment strategy on deposits, how much did you gear that? And we know the effect from the subsidiary, comdirect, where a lot of more deposits were deployed and a nice NII increase was shown in Q1 and Q2. And you also showed some NII increase, I think, from that effect, so could you please elaborate more on that? And thirdly, it's more of a technical one, the EMC sale. I think SocGen also talked about EUR 350 million in revenues, roughly. Could you give us a split of the revenues in NII? How much is fees? Just for modeling purposes.
A number of questions. Now let me start with the deposit question, to be simple there. As you have seen, that has been the strategy for the last quarters, basically from a holistic banking steering view, is that we wanted to increase the loan-to-deposit ratio at our corporate business, where not all of the deposits from our clients can be fully modeled under regulatory -- under the current regulatory regime. So we have mainly reduced these deposits to make better use of the additional deposits that we have collected and that we still collect in the private clients business, which also means that following this development, there has been a slight positive impact from modeling, some of them a little bit better to the smaller -- or there's a little change in model that we have seen. On the EMC sale, I think I need to refer you probably to our IR guys because I don't know the split of the numbers from the top of my head. And equensWorldline, there you need to keep in mind we are basically talking about outsourcing the IT for our payment services, not the payment services as such. And equens is one of the leading companies in Europe that offer these, let's say, flexible and cost-efficient platforms. So it's more the IT than the transaction -- or the payment services as such.
But any number you can put on it, or...
No, we haven't given any numbers.
And next up, we have Anke Reingen, who's calling from RBC.
Firstly, on net interest income. I just wondered, in Corporate Clients, in the previous quarter, you talked about the impact of some accounting with NII being weaker and the fair value result being higher. Has that basically reversed in the second quarter? And then in the corporate center, the Others and Consolidation, you talk about NII being higher because of lower PPA, but also because of funding cost allocation to the divisions. So is that basically a meaningful hit to the division? So would there be underlying being better? And is the 80 then basically a run rate? And then sorry to come back on the EUR 6.5 billion. I mean you clearly put this up some time ago, and I mean you have done a lot on your digital strategy. Would you sort of -- like how important is the EUR 6.5 billion? If you see investment opportunities, [ would it be to ] make sure you get to the EUR 6.5 billion? Or is that also dependent on where you see the investment opportunities? Because I think that, yes, that's obviously a lot has happened since you put this up.
I will maybe take the last question, first. EUR 6.5 billion is at EUR 6.5 billion. Others and Consolidation, there have been smaller NII and PPA positive effects, which in general has led to the adjusted guidance for Others and Consolidation from the original 100 minus per quarter to 75 per quarter. I don't think there's any meaningful change in any of the run rates of the other segments. NII in Corporate Clients, let me call it this way: IFRS 9 is a very powerful tool and has a lot of rules and other stuff, and we now have understood it even better. So Q1 was right and Q2 is even more right, and it has helped a bit the NII in Corporate Clients in Q2.
The next question comes from Nicholas Herman, who's calling from Citigroup.
Just a couple of questions, please. The loan growth in Corporate Clients. So that was EUR 3 billion Q-on-Q. I understand that you've said there's about EUR 1 billion of RWA which will unwind, but what is the risk ratio on that? So how much -- what proportion of the loans will unwind? And within the -- I guess you can say, the real underlying loan growth, could you give some color in terms of what that is? Is it small -- is it SME? Or is it large corporates? That will be helpful. And then secondly, I understand that you need to do more sort of to fight the declining revenue environment. Just how do you think about growth versus capital build generally? And what is your outlook then for capital, so to speak.
On Corporate Clients, again, is it -- I call it transitory RWAs, which still doesn't mean that they go away within weeks. It's the classical larger acquisition financing deals that you have also probably publicly seen. So without disclosing any names, you probably have a rough idea what it could be. We expect them to stay on the books, maybe around a quarter or a bit more. Secondly, in that sense, you ask where the classical growth is. It is mainly SMEs increasing the drawings as well as International Corporates growing a bit. As I earlier -- as I mentioned earlier, we still see the capital ratio towards the year-end at, at least 13%. If you review the RWA movements a little bit closer, you can see that also Others and Consolidation and Treasury have seen a smaller RWA increase, which we can reverse. And there is still some shipping exposure going off in the second half of the year. In general, your question how do you see growth versus capital build, the simple answer is in the current situation you need both. It is also pretty clear that in the corporate market the margin pressures are high at the moment. Everybody tries to keep his position because I think there is a reasonable expectation that not interest rates will go up, but at least credit spreads will improve, looking at the ECB gradually running-down their corporate bond prime program. So in that sense, balancing the two is what we need to do. And that is also part of the reason why we said, yes, we want to grow, but obviously, not at any expense.
So just one on the loans that will unwind. I mean is a 50% risk weight unreasonable? So shouldn't this come out?
I don't know from the top of my head. I was more thinking in RWAs. So I would think -- no. Before I say something wrong -- maybe IR can help you later.
The next question comes from Andy Stimpson, who's calling from Bank of America Merrill Lynch.
Most of them have been answered, but I've got two here, one on IT and then one on net interest income. You're making pretty good progress in all the journeys, and the digital KPIs all look great. Now when you say that a journey has been completed, does that mean that you've fully decommissioned the old systems? Or have you just built the new ones? And if the old ones haven't been decommissioned, can you talk about the costs involved there and maybe the time line for that? And then on net interest income, I think in response to an earlier question you said you'd increased the share of the modeled deposits, but your guidance on the net interest income benefit from the 100 basis point rate rise hasn't changed. Wouldn't -- would you expect that to change? Or is it just that the move so far has just been too small? Or I've missed that.
No. I would say the -- no, it's clearly that the interest sensitivity remains unchanged. The numbers that you see in the presentation are the ones to work with. And again, this is more driving the general deposit dynamics of the whole bank, which is what we do by increasing the loan-to-deposit in corporates versus getting use of some of the modeled deposits in the other part. And again, modeled deposits do have a lesser sensitivity to interest rate changes, anyway. The most comes from the un-modeled, also the short-term one. IT, yes, we call a journey finished when basically the bank can use the product that the journey has produced. Indeed, decommissioning is an interesting thing that probably has more potential looking forward, but as I said before, the cost target of EUR 6.5 billion stands at EUR 6.5 billion.
And next up, we have Daniel Regli, who's calling from MainFirst.
Just quickly, could you maybe elaborate a bit on the competitive situation on both of your key businesses? We already heard about competitive pressure in Corporate Clients. Obviously now competitive pressures have also increased in PSBC. Where is the pressure coming from? And how long do you think will this situation persist? Is there any kind of -- or what needs to happen to get a relief from the competitive side?
No. I would say in general the competitive situation is as it has been always in Germany, to be very simple. And currently with the low interest rate environment, the burden of deposits in a number of banks are basically at all participants -- market participants is high. Everybody is trying to make as much of his deposit, of his surplus deposits get to work. And in that sense, yes, competition is fierce, but that has been the key element of the German market for the last decades. In that sense, I wouldn't necessarily expect that to go away by one reason or the other because I think we are all not strong believers in a interest rate hike too soon, which means that the classical instruments of our strategy, which we can see that work and provide the necessary positive results, is the ones that we will need to do going forward. And yes, maybe we need to tweak one or the other a bit, but in general, the strategy is right. And the market is basically the way it has always been.
And next up, we have Jochen Schmitt, who's calling from Metzler.
I have one question. Could you give any first indication for your expectations on the disposal result of the ECM business? And given that this is -- that it is most likely too early to give any detailed answers, I also ask this question in a slightly different way: Will there be any significant impact on your net income at all? That's my question.
That is very interesting questions, and let me say some very general remarks. One, it's pretty clear that the revenues will fade away faster than the costs. That is what we have said. So revenues will fade away in '19, throughout '19. And costs will be reduced by EUR 200 million, at least, at the end of '20, so there is a little bit of a offset or a little bit of a difference between the two. There will be some further project and execution costs associated with the deal, but in general let me put it this way. And that is your well-disguised question of is there any additional payment or something once we have the deal signed and finished. I wouldn't expect that we have a negative separate impact from that deal.
And the last question for today comes from Brajesh Kumar, who's calling from Societe Generale.
Brajesh from SocGen Credit Research. Just a quick one on your funding plans. So where are you on AT1 issuance? Any change in mind there? Or do you still believe that you don't need to really do that, given your lever ratio and a pretty decent CET 1? And second, with recent law change, can we expect you to venture into preferred senior sometime in H2 maybe?
In general, we have been not active in the AT1 market. We are watching the market. We all know about the slightly adjusted regulatory treatment of AT1 and core capital. So I think what has been right before, which is we actively watch the market, is something which is still right going forward. Secondly, our funding plan for the year stands. I think we will watch every possible instruments. And once the law changed, it's fully in effect and the market has fully understood the dynamics and the pricings of these products, we will also review these product categories, but in general there is no immediate [indiscernible].Okay, ladies and gentlemen, many thanks for your questions and the discussion with you. I'll try to say goodbye for today, and I'm looking forward to future discussions. And maybe I see one or the other tomorrow in London. Thank you.