I would like to start with the very current topic. Just yesterday we saw enormous nervousness in the bond market. The yield on the 30-year German Bund is at its highest level since 2011. Similar movements in Great Britain, uh Japan, this morning, USA, uh France. What goes through your mind when you see these numbers? Is this a brief nervous flare-up or is something starting to slide?
Neither. I don't think anything is sliding. I also don't think it's just a flare-up. It is essentially a reflection of partly political uncertainty, uh of lacking reforms, of rising debt. One must also honestly say, it's always a bit the same game. August is uh rather quiet. Then in September many come to the market. There is uh enormous refinancing to do. So I wouldn't let myself get nervous about a single movement on one day. And I still believe that uh the emissions that are now being taken are covered and overcovered. Uh but nevertheless we have to see that yields are rising and that means that naturally a somewhat different risk perception is there and that has to do with political uncertainty. But it also has to do with the fact that uh the economic reforms that are needed to truly cover increasing debt are lacking. And the capital market sees that. And that's why I always say, the capital market is a good reflection also for uh political reforms that need to be implemented. So we should take it as a warning and not uh simply duck away and say nothing will happen.
Speaking of warnings. Ray Dalio yesterday again, one must say, warned of a financial crisis in the USA. Is that a warning you take seriously?
No, so I I believe in the short and medium term uh I am not nervous uh that anything will happen in the USA or that the relevance of the dollar will be lost. I believe the USA has enormous economic growth. I just spoke about technology, what that all entails and what we see this year, whether it's the 350 billion dollars or with additional investments into data centers 500 billion dollars, that is already huge and that will continue next year. But I believe he is right when one talks about the long-term, when one talks about the long-term debt situation of the USA uh. We have a deficit that is between 6 and 7% annually or even north of 7%. That uh must not be lost sight of and therefore uh one must certainly think about one thing or another in the long term. But that doesn't mean that tomorrow or the day after tomorrow there could be uh increased volatility, but it also means that uh one should uh put a disciplined fiscal policy and uh budget at the forefront, economic growth must be set. Uh, but it's also about political uh stability and all the discussions we have about independence of central banks do not make the capital market calmer. That was mentioned earlier in your presentation. I think that's very important. And these three things together bring some volatility and that's why we see the swings uh in yields on the 30-year.
We talked about the swings yesterday, today it continues. What do you expect for the next few months with regard to yields in Europe?
I think what we are currently seeing will be roughly uh the range in which we will move. I don't expect that there will be an escalation and that we will have refinancing bottlenecks. I don't believe that. But I also don't believe that these swings that have gone up will ease significantly again. That requires reforms, that requires political stability. We also have to see what happens in France. I think in Great Britain we have to see uh how the cabinet reshuffle uh develops. We have to pay attention to reforms in Germany. The capital market wants to see all that. Therefore I think this development that we have seen in recent days and weeks is something that we will probably maintain. We will stay in this room uh these levels. I do not see a further uh threatening escalation. However, if we see a further worsening of political instability, if we see no reforms, if we see simply higher government debt, then it will be so. So France could be there as early as next week. France could be there as early as next week. Let's see what happens next week.
Let's look at Germany. You mentioned the state of the German economy, you mentioned the mood, you have deep insight into the true state of the German economy through your function at the bank. If we now look at the balance sheets of companies, of your corporate clients, do we actually see a mood of departure, do we see more investments? Do we see that the positive mood that you spoke about, which we saw before the summer, that this mood is materializing or are we still waiting? Partially but very hesitant.
Uh and that is exactly right as you describe it. We really saw a mood of departure in early summer. We had an enormous number of conversations, but a psychological effect. I also believe that uh the reform of the debt brake, always announced in parallel with reforms that are to come, was exactly right. But it has to come in harmony. You can't just increase debt and not implement reforms. It has to happen in parallel. I think that led many companies to recalibrate and think about investments. And we feel that in our conversations. In the second quarter uh we saw that our corporate client uh loan portfolio increased slightly. uh not yet very strongly, but increased slightly, which was already a difference from previous years. And that's why it's so important now that we further strengthen this mood of departure, which is such a tender plant, and that's why two or three reforms have to come in the second half of the year. I do believe, however, that the federal government has recognized this. We hear a chancellor who repeatedly uh says and demands that. And I think we have no other choice, because it's not just about our corporate clients, it's about our entire economy. We still have an extremely high savings rate in Germany. That also means that the consumer is not consuming as much as he actually could. And I just spoke about foreign investors who have a high interest in diversification, a high interest in investing with Germany and in Germany, but they also want to see reforms and that's why it's so important that we take the next steps now.
Let's come to the, before we talk about reform, to the investors. We've talked about them often in recent months. The interest is greater. They came to Germany, held high-level talks. Do we now actually see more investments from abroad coming to Germany?
Yes, so we have investment commitments. The problem is only that they also need to be allocated. The investment packages of the federal government, which we have through the additional 500 billion in infrastructure defense, they need to be allocated now. Do I invest in infrastructure, do I invest in technology, where exactly are the fields where we invest? These decisions need to be made now, because these packages are supposed to be leveraged and levered with the additional investments coming from investors. So, they are sitting on their money. This money has to stay in motion. This money wants to be worked. If I naturally need another four to six months just to know, do I go into infrastructure, do I go into technology, then it could be that these investors in the meantime say, I go back to X or Y and invest there. We cannot lose this time.
A top manager from the German economy recently said in a confidential conversation, that's why I won't say who it was, but I am allowed to use the information, described the situation as everyone is just waiting for something to happen. Is Berlin now in the driver's seat? Is that the mood?
Yes, everyone is waiting, but I do think that there is a different interplay between the economy and the government and one must really say that the exchange uh with the chancellor, with the finance minister, with the minister of economic affairs is really good and I sense an interest from politics to take on the advice of the economy or the thoughts of the economy, just as we and that is this Made for Germany initiative, really want something to move here. We want investments to be made here. We try to talk to foreign investors to come to Germany. So I do sense a solidarity between the economy and the federal government and that's why I remain optimistic about the situation we have, that if two or three things get rolling and we have already set the first right signal with the investment booster, with the special depreciation, then something will develop here and we have to work on that together. I think the worst thing that can happen to us now is if we act against each other. That would not be good for Germany and let's not forget, when we only talk about Germany, we have a pioneering role to play in Europe. Our opportunity, especially in the global political situation to establish ourselves, is particularly through Europe. Europe as a continent, whether for defense reasons or economic reasons, must continue to grow together. We must seize this opportunity now and it always happens when Germany is strong, when Germany leads the way, and that's why we as the economy must stand behind it and I sense this cohesion.
But do we really see this leading the way when I look at Berlin? Then I see a coalition that has completely conflicting uh goals. Some want uh to reform the social systems, want to cut very deeply uh in spending, others want to raise taxes and there is absolutely no movement towards each other. What makes you so optimistic that this government will actually achieve reforms by Christmas? Because if you don't make it by Christmas, we are heading into a year with uh four state elections, uh nothing more will happen in this legislative period.
Yes, so what on the one hand is language and sometimes perhaps a bit of polemic, also certainly has to do with local elections, state elections. Uh let's take that out. I have heard from both sides, whether it's the CDU, whether it's the SPD. Growth and competitiveness are at the center of action for the next 3 years. We had a debt reform within two months. We got new uh corporate taxes passed within two months. We got an investment booster. We now want, if I understand Berlin correctly, further reforms regarding energy prices, very important for the German Mittelstand, especially for the manufacturing sector. Uh, I believe they are tackling reforms for the social systems. I do believe that despite all discussions, this focus on these reforms will not go away. And I hear that from both camps. And that's why we should now give the policy the trust that they can implement it. We as the economy stand behind it. We as the economy have offered to help there and also to give ideas when talking about liberalization, flexibilization of the labor market, what else we could do, where we can help. And quite honestly, yes, perhaps some discussions over the summer months were unfortunate, but we should not let ourselves be distracted by that now. This government has set out. Which discussion? The tax debate or? No, not the tax, but for example also the discussion about the judge election, that was certainly not positive. That also has spillover effects, but now we should focus again on what we have set out to do and this federal government has set out to make Germany's economy more competitive again. I still believe that and from all the conversations I take away, I have the feeling that the federal government is focused on that and that despite all the strife, we will take the next steps.
I'll ask differently. By Christmas, autumn of reform. What must have happened by Christmas in this autumn of reform for you to say, man, something good has been achieved. Which three projects uh must at least be completed?
So, first of all, it's important that two or three actually happen at all, because this signal to the outside that fundamental reforms are being made here is enormous and very, very strong, because we are not trusted to do that. Mm. I believe that a reform of energy policy will definitely happen this year. I think the Ministry of Economic Affairs is very active on that. I believe that there will be a revision of the social systems. I believe that with the reduction of bureaucracy, first steps have been made and further steps will be taken. Of course, you need Europe for that. Uh just these three things, if we make progress there, it will help us. I believe that on old-age provision, on a more capital-funded old-age provision, the first steps have been made. Uh active retirement is supposed to come. I think the big breakthrough will only come in 2026, but work is being done on that too. So the things are already on track. Now one must have the courage, perhaps also to implement reforms where maybe one or the other says, we are against that, but it is for the economy, the majority of the German uh uh certainly positive.
Mhm. Made for Germany, the initiative you mentioned, one hears that many more companies are joining. How many are there now in total?
Uh, we will make a second communication, so I don't want to preempt that, but there are uh already significantly more than what we said in July. And what is really nice is that it is broad. Mr. Mattes, it is the Mittelstand. We have startup companies involved and it simply shows that the German economy, which fortunately does not only consist of DAX companies, but of the large Mittelstand, family businesses, smaller Mittelstand, startup companies. That is exactly what is now showing in this initiative. And Made for Germany is also not just the 630 billion or 640 billion that we announced on July 21, but that we make proposals on new work packages, whether it's energy, whether it's the labor market, whether it's technology, whether it's Europe, whether it's capital markets, and say, this is how Germany could become stronger. That means it is substantive work that we provide. We hope it will be used. We stand ready as partners, but it is not just money, it is advice. And with that we hope to set a signal that the economy together with politics, together with CDU and SPD and CSU should drive this country forward. That, I believe, we owe.
But since you just mentioned the money, how much of this money is actually really new investments? That is not really clear to this day.
Nice try. Uh we will also say that eventually. Why not? Yes, maybe we'll do it in the second communication, but I will certainly not change what we discussed differently in the group. But it is already a material portion and we see that is also this typical German. We talked about it for three years, also with you here, and said, my God, everyone invests abroad, everyone takes their investments out. Now we have investment commitments of nearly 650 billion, as of July 21, now we are already above that, that we will invest that in Germany over the next three years. Then they look for the flaw in the detail. How much of that is new? I can tell you, a material portion is new and much new is being added. The more we work on reforms now, the faster we can allocate the investments from the 500 billion. I swear to you, next year we will talk about significantly more money coming from abroad to be invested here. Let's look at it positively.
It's not really about finding flaws, is it? It's about really understanding uh what is really substantial new funds to understand how a three-digit billion amount... and now we take the next question, but that is already a benchmark. Let's come to Deutsche Bank. Many banks, including you, assume that the federal government's spending plans on defense and infrastructure will also be positive for the business itself. How strongly will Deutsche Bank benefit?
First of all, we have to benefit from the fact that we uh continue to take the right steps and so to speak not just uh ride on the coattails of other initiatives. Uh but of course economic growth, our economists continue to say, if the reforms come, if we allocate the 500 billion well, it gets leveraged, Germany could achieve two percent growth next year. Uh, that is very confident, that is very optimistic, but it shows the potential we have. Deutsche Bank has grown between 5.5 and 6% each year in recent years. If we now see stronger growth in our home market in Europe, then we naturally benefit from that as well. That's why investments in the corporate banking business, investments also in the uh advisory business in the investment bank, but also in the private client business will pay off. So naturally we want to allocate these funds. We want to see to what extent we can further leverage these funds with our possibilities to help the economy. So that is a clear growth case for Deutsche Bank and we will certainly do that on November 17 when we have our Capital Markets Day.
You are advising on a return target. Will that have an impact on the return?
Yes, it must uh automatically, we don't want to grow to have less return, but Deutsche Bank has set itself a 10% return on equity for this year. In the first half year we clearly exceeded that. The third quarter has started very, very decently. So the market has already rewarded that. But let's be honest, we cannot stop at 10%. We have to get to where top European banks are. If we want to play in the top league and be the European champion, then we can't just be in terms of product, but we also have to be in profitability. So the path for the next three years is clear and growth helps there. Uh, but in the bank it is very often the case and that is the positive about us, the moment you have set up the technology correctly, growth comes while you can keep costs fairly steady. And this operating leverage will help us to further increase profitability.
The market expects 12%. Will you exceed market expectations?
Yes, let's see what we say on November 17.
