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Below is the transcript of a CNBC Exclusive interview with Deutsche Bank CFO and CNBC's Annette Weisbach.
AW: Let's first of all talk about the money laundering scandal which popped up last week, with a big raid here at the headquarters of Deutsche Bank. So how could that happen, once again that Deutsche Bank is entangled in a scandal?
JVM: So we've been in the papers again in ways that we'd rather not be. The Frankfurt prosecutors paid us a visit last week in connection with an investigation about which we had no prior knowledge. It relates to the Panama Papers, an issue that we'd understood had been fully addressed through previous investigations. To date, we're not aware of any wrongdoing on our part, so we'll await the conclusions of the prosecutors. Of course, as we've said, and has been confirmed by the prosecutors, we've been fully cooperating with their, with their investigations.
AW: Let's look though at the capital market reactions, because that was quite harsh. So the capital market is concerned that there might be again the risk of high litigation costs for Deutsche Bank?
JVM: Yes. No the capital markets of course will struggle to get a proportion or a sense of proportion associated with these matters. What's important to understand is that the business that the prosecutors are taking an interest in, first of all, is a business that we've sold, that transaction closed earlier this year. Secondly, it's a very small business. It was a trust services business with revenues in the single digit millions in profit in the single digit millions. It is a very small business relating to a small number of clients and small number of assets. And of course it's trust services, which is not a— you know, as a business that has conducted all around the world. We of course take our KYC and other responsibilities very seriously in this regard and have done for several years. It's a business in our wealth management area where through client vetting programs and the like we've been extremely diligent.
AW: I think what spooked investors as well was the fact that the suspicion is that the money laundering ran well into this year so that current management was already in place. So, what's your response here?
JVM: So current management has been engaged in improving over time all of our KYC client assessment programs to ensure that the clients we do business with, we understand the sources of their funds, the reasons that they're conducting the business with us, and that's been a real emphasis of current management. I think the investigation really reflects not at all on today's control systems. It reflects a previous state of, if you like, the leaks that came out with the Panama Papers and whether there were some nexus, some client relationships that we had that had come up in the Panama Papers. As I say, that had been fully investigated and to our knowledge that investigation had been closed.
AW: Would you exclude personal consequences when it comes to the current management for these specific issues?
JVM: The current management has conducted itself with a real focus on our compliance, on our control systems. We've made enormous investments, I believe those investments are showing themselves. We're highly engaged with our regulators on that control environment and that's something that has been an enormous focus of the current management.
AW: Let me bring you back to the fact that the money laundering suspicion is that it ran well into this year. So is current management not weakened by that suspicion?
JVM: First of all it's a business that we've sold. It was a decision back in 16 to sell the business – we announced a sale in 17 and closed it this year. Secondly, I'd say current management has made enormous efforts to improve our control environment, prove our KYC capabilities, invest in these capabilities. That's been ongoing through a client review program, really for much of this decade, and certainly since 2015. That's been the effort of this management team in respect of these businesses. I'd also say it's a very small business that we that we sold. So it's a trust services business that in terms of revenues and profits was, and number of clients, was extremely small.
AW: Okay, let's look again at the share price, because the share price is really close to record lows. So how much more can it fall until it actually causes problems for Deutsche Bank?
JVM: So these news items have come up during a time of some volatility in the marketplace and naturally it's hard to separate our share performance because of the news items versus the overall environment. But it does for us create some concern. We need therefore to help investors understand the nature of the news items and the risks that we see in those. We do think that the reactions have been more severe than we might have expected when thinking about each of these fact patterns, and they're unconnected items.
AW: And does the same hold true for the bonds side, because the bond market is more or less telling the same story?
JVM: Yeah, no. Well, look, the bond market is a relatively thin market, so on relatively thin trading there's been a widening of our spreads, and naturally that that causes concern for us. Our capital, our liquidity remain extremely strong, as we reported at the end of the third quarter. Liquidity, as it happens, has strengthened during the quarter from an already strong position, and so that that needs to be understood by our credit investors and certainly we look forward to a calming of the market environment as it relates to our spreads and frankly the CDS.
AW: One question which I got last week is whether there were already signs that clients are taking away their money from Deutsche Bank because of those, yep, popping up of scandals again.
JVM: So what I say is it's been a very muted client response since that, the raid last week. As I say, liquidity is very strong, we are engaging with our clients to help them understand the nature of the situation. You know raids that take place with reasonable frequency in Germany aren't that well understood outside of Germany. In part, international investors don't understand the differences between the German environment as it relates to subpoena powers and other things. Our focus is obviously on cooperating with the prosecutors making sure that we satisfy their requests and hopefully putting the investigation fully behind us.
AW: Are you at all concerned that you could actually not meet your target for this year to be profitable?
JVM: No, we remain on track towards our targets, as Christian [Sewing] and I said with the third quarter results in October, but that continues today. We are working towards our cost targets, our targets for FTEs at the end of the year and we have those very well in sight here as we sit in the early days of December. And remember we've been targeting to have the first profitable year in several years and we remain on track to that goal as well.
AW: How did October and November go? Because the markets were really like very volatile and negative, was it good for you? Was it bad for you?
JVM: The markets have been difficult, but there have been no surprises in October and November. We, again, we remain on track to do the things that we can control. We're seeking to, if you like, turn the corner in terms of the revenue performance in the company. October and November were difficult markets in the, or market environment, for our global markets business. But again we remain on track to achieve our goals.
AW: How much concern are you about hard Brexit? Because it really looks Theresa May isn't going to get the deal through parliament.
JVM: We're watching it carefully, obviously, and we've we've taken enormous efforts to make sure that we're prepared for every eventuality. Of course, we hope that the political solutions are found, and that we have the transition that I think would would certainly calm the markets again and put this worry behind us as well.
AW: Ok James, thank you very much.
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