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Bank of Japan ends era of negative interest rates

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Bank of Japan ends era of negative interest rates

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The Bank of Japan has ended an era of negative interest rates, raising borrowing costs for the first time since 2007 in a historic shift as the country puts decades of deflation behind it.

Kazuo Ueda, the BoJ governor, brought an end to more than a decade of ultra-loose monetary policy, abandoning a swath of easing measures that were put in place to stimulate Asia’s most advanced economy.

Following a 7-2 majority vote the BoJ said it would guide the overnight interest rate to remain in a range of about zero to 0.1 per cent, making it the last central bank to end the use of negative rates as a monetary policy tool. Its benchmark rate was previously minus 0.1 per cent.

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The BoJ turned to negative interest rates in 2016 as it tried to encourage banks to lend more in order to generate spending and contain the risks of a global economic slowdown.

Tuesday’s policy is likely over time to trigger shifts in global investment flows, as domestic yields become more attractive to Japanese investors, and comes as signs emerge of broader change in the Japanese economy.

Workers at some of Japan’s largest companies have secured their biggest pay rise since 1991, giving Ueda enough confidence that mild inflation will continue — a goal that has been central to the bank’s policies for years.

More companies are also passing on inflation costs to consumers and labour shortages are contributing to higher wages.

Investors have also grown more confident in the economy’s prospects. In February the Nikkei 225 stock index finally surpassed the level reached 34 years ago.

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The yen weakened 0.8 per cent against the US dollar to ¥150.33 after the BoJ’s move. The Nikkei 225 stock index closed 0.7 per cent higher on the day while the broader Topix index closed up 1.1 per cent.

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Despite the return to positive interest rates, BoJ officials do not see the first increase as a signal that more will quickly follow.

Inflation, which was sparked by a rise in imported energy and food prices, is well beyond its peak. Core inflation, which excludes volatile fresh food prices, slowed in January for the third straight month.

“Given the current outlook for economic activity and prices, the bank anticipates that accommodative financial conditions will be maintained for the time being,” the BoJ said.

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On Tuesday the central bank also removed its yield curve controls, another policy put in place in 2016 to reinforce its massive monetary easing measures by capping the yields of 10-year Japanese government bonds.

The BoJ said it would maintain its policy of buying about ¥6tn ($40bn) a month in Japanese government bonds, a pledge that underscores continuing weakness in the economy as household consumption remains sluggish.

But it will discontinue purchases of exchange traded funds and Japanese real estate investment trusts.

As part of the new framework, the BoJ will apply an interest rate of 0.1 per cent to deposits held with the central bank, removing a complicated three-tier system of borrowing costs that was adopted to limit the negative rate policy’s hit to commercial banks’ earnings.

While the end to negative interests rates was widely expected, economists had been divided on how far the BoJ would go in scrapping other measures such as yield curve control and ETF purchases.

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Sayuri Shirai, a former BoJ board member who opposed the introduction of negative interest rates in 2016, said that because economic conditions were not yet in place for additional rate increases, the BoJ appeared to have decided it only had one chance to act.

“We have to give credit to Mr Ueda for his resolve and boldness. Instead of doing it gradually, he just quit everything altogether and that also likely means that this is it,” she said.

Ueda’s decision sparked opposition from two BoJ board members, with one arguing that it should have avoided removing both negative interest rates and yield curve controls until the “virtuous cycle” between wages and prices had become more solid.

Additional reporting by William Sandlund in Hong Kong

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Mexico trade deal threat poses risk to prices of US pick-ups, warns Chrysler boss

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Mexico trade deal threat poses risk to prices of US pick-ups, warns Chrysler boss

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The head of Chrysler has warned that tampering with the US-Mexico trade agreement risked making pick-up trucks unaffordable for Americans, after a suggestion from Donald Trump that he could curtail imports across the southern border if re-elected. 

Trump hinted he would prevent cars built by Chinese companies coming in from Mexico if he became president again, in response to China’s BYD planning a new electric vehicle plant south of the US border. 

“You’re not going to be able to sell those cars if I get elected,” Trump told a rally last month in Ohio. He has separately suggested imposing tariffs of 50-100 per cent on Chinese models coming into the US. 

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Carlos Tavares, who heads Stellantis — the owner of the Chrysler, Jeep and RAM brands — said breaking the US-Mexico-Canada Agreement would be a “lose-lose” scenario. He said that on top of higher car prices, such a move would flood the US with even higher numbers of Mexican immigrants.

“The first obvious consequence is huge inflation . . . because if you stop the sourcing of the most cost-competitive products . . . your costs go through the roof, and then your price goes through the roof,” he said. “Then the middle class cannot buy pick-up trucks anymore.” 

The second issue, he added, was “what you do with the Mexicans that have no more jobs”. 

The USMCA trade deal between Canada, the US and Mexico is due for a “review” in 2026 that may lead to new terms. However, some western automotive executives now privately believe that if Trump were to be re-elected in November, he would overhaul, or even scrap, the agreement.

Several auto groups have begun contingency planning around plants and investments. “Our expectation is that the border effectively closes,” said one senior executive. “We have to plan for that.”

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Though Tavares declined to name Trump, he said: “It seems that the leader that you mention has a clear view on what you should do with immigration”. 

Mexico’s car and auto parts industries employ almost 1mn people, and are heavily reliant on access to the larger US market. 

Two-thirds of Mexico’s car production is exported to the US, while many US auto factories are reliant on Mexican component plants for lower-cost parts. 

The country’s vehicle industry only started growing after the introduction of the North America Free Trade Agreement in 1994, which allowed parts and cars to travel between the US and Mexico without tariffs. 

During Trump’s first period in office, the deal was revamped as the “USMCA”.

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BYD, which already sells cars in Mexico, is planning to build a car plant in the country, which would give it a foothold to begin supplying the lucrative US market. 

Tavares also warned that US buyers would be willing to switch to Chinese car brands, despite geopolitical tensions between the nations. 

“If I look at the US, everybody tends to think the US is protected, [the Chinese] will not come in,” he said. “But in the 1970s the Japanese came, in the ’90s the Koreans came, and if you cannot make your pick-up trucks affordable, you have a problem.” 

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What Trump’s war on the ‘Deep State’ could mean: ‘An army of suck-ups’ | CNN Politics

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What Trump’s war on the ‘Deep State’ could mean: ‘An army of suck-ups’ | CNN Politics



CNN
 — 

At one campaign rally after another, former President Donald Trump whips his supporters into raucous cheers with a promise of what’s to come if he’s given another term in office: “We will demolish the deep state.”

In essence, it’s a declaration of war on the federal government—a vow to transform its size and scope and make it more beholden to Trump’s whims and worldview.

The former president’s statements, policy blueprints laid out by top officials in his first administration and interviews with allies show that Trump is poised to double down in a second term on executive orders that faltered, or those he was blocked from carrying out the first time around.

Trump seeks to sweep away civil service protections that have been in place for more than 140 years. He has said he’d make “every executive branch employee fireable by the president of the United States” at will. Even though more than 85 percent of federal employees already work outside the DC area, Trump says he would “drain the swamp” and move as many as 100,000 positions out of Washington. His plans would eliminate or dismantle entire departments.

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A close look at his prior, fitful efforts shows how, in another term, Trump’s initiatives could debilitate large swaths of the federal government.

While Trump’s plans are embraced by his supporters, policy experts warn that they would hollow out and politicize the federal workforce, force out many of the most experienced and knowledgeable employees, and open the door to corruption and a spoils system of political patronage.

Take Trump’s statement on his campaign website: “I will immediately reissue my 2020 executive order restoring the president’s authority to remove rogue bureaucrats. And I will wield that power very aggressively.”

That executive order reclassified many civil service workers, whose jobs are nonpartisan and protected, as political appointees who could be fired at will. At the time, more than four dozen officials from ten Republican and Democratic presidential administrations, including some who served under Trump, condemned the order. In a joint letter, they warned it would  “cause long-term damage to one of the key institutions of our government.”

In the end, Trump’s order had little impact because he issued it in the final months of his term, and President Joe Biden rescinded it as soon as he took office.

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But if, as promised, Trump were to change thousands of civil service jobs into politically appointed positions at the start of a second term, huge numbers of federal workers could face being fired unless they put loyalty to Trump ahead of serving the public interest, warn policy experts.

“It’s a real threat to democracy,” Donald Moynihan, a professor of public policy at Georgetown University, told CNN. “This is something every citizen should be deeply aware of and worried about because it threatens their fundamental rights.”

Moynihan said making vast numbers of jobs subject to appointment based on political affiliation would amount to “absolutely the biggest change in the American public sector” since a merit-based civil service was created in 1883.

One of the architects of that plan for a Trump second term said as much in a video last year for the Heritage Foundation. “It’s going to be groundbreaking,” said Russell Vought, who served as the director of the Office of Management and Budget under Trump. He declined interview requests from CNN. But in the video, he spoke at length about the plan to crush what he called “the woke and the weaponized bureaucracy.” Vought discussed dismantling or remaking the Department of Justice, the FBI and the Environmental Protection Agency, among others.

Vought focused on a plan he drafted to reissue Trump’s 2020 executive order, known as Schedule F. It would reclassify as political appointees any federal workers deemed to have influence on policy. Reissuing Schedule F is part of a roadmap, known as Project 2025, drafted for a second Trump term by scores of conservative groups and published by the Heritage Foundation.

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Vought argues the civil service change is necessary because the federal government “makes every decision on the basis of climate change extremism and on the basis of woke militancy where you’re effectively trying to divide the country into oppressors and the oppressed.”

A Trump campaign spokesperson pointed CNN to a pair of campaign statements from late last year in part responding to reporters’ questions about the 900-plus-page Project 2025 document. The campaign said, “None of these groups or individuals speak for President Trump or his campaign… Policy recommendations from external allies are just that – recommendations.” However, the Project 2025 recommendations largely follow what Trump has outlined in broad strokes in his campaign speeches – for example, his plans to reissue his 2020 executive order “on Day One.”

Ostensibly, a reissued Schedule F would affect only policy-making positions. But documents obtained by the National Treasury Employees Union and shared with CNN show that when Vought ran OMB under Trump, his list of positions to be reclassified under Schedule F included administrative assistants, office managers, IT workers and many other less senior positions.

NTEU President Doreen Greenwald told reporters at the union’s annual legislative conference that it estimated more than 50,000 workers would have been affected across all federal agencies. She said the OMB documents “stretched the definition of confidential or policy positions to the point of absurdity.”

Trump’s comments about wanting to be able to fire at will all executive-branch employees suggest the numbers in a second term would be far greater.

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Moynihan, at Georgetown, said US policies already grant the president “many more political appointees than most other rich countries” allow – about 4,000 positions.

“Almost all Western democracies have a professional civil service that does not answer to whatever political party happens to be in power, but is immune from those sorts of partisan wranglings,” said Kenneth Baer, who served as a senior OMB official under President Barack Obama. “They bring… a technical expertise, a sense of long history and perspective to the work that the government needs to do.” Making thousands of additional positions subject to political change risks losing that expertise, while bringing in “people who are getting jobs just because they did some favor to the party, or the president was elected. And so, there’s a risk of corruption.”

Kenneth Baer (second from right), a senior advisor at the Office of Management and Budget, meets in the Oval Office with President Barack Obama, OMB Director Peter Orszag and others on Dec. 21, 2009.
Robert Shea (left), then associate director of the Office of Management and Budget, and his wife Eva Shea (right), meet with President George W. Bush and First Lady Laura Bush at the White House on Dec. 21, 2009.

Such concerns cross the political aisle. Robert Shea, a senior OMB official under George W. Bush, called himself a hugely conservative, loyal Republican. But hiring people based on personal political loyalties would produce “an army of suck-ups,” he said.

“It would change the nature of the federal bureaucracy,” to remove protections from senior civil servants, he said. “This would mean that if you told your boss that what he or she was proposing was illegal, impractical, [or] unwise that they could brand you disloyal and terminate you.”

Biden has moved to block such a move. On April 4, the Office of Personnel Management, which in effect is the human resources department for the federal government, adopted new rules meant to bar career civil service workers from being reclassified as political appointees or other types of at-will workers.

The new rules would not fully block reclassifying workers in a second Trump term. But they would create “speed bumps,” said Baer. “To repeal the regulation, there would have to be a lengthy period of proposed rulemaking, 90 days of comment,” and other steps that would have to be followed. “And then probably the litigation, after that.”

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In Grand Junction, Colorado, supporters of then-candidate Donald Trump wave at his plane after a 2016 campaign rally. In 2019, President Trump moved the headquarters of the Bureau of Land Management to that city, leading 87 percent of affected employees to resign or retire rather than move from Washington, DC.

While assailing “faceless bureaucrats,” Trump also has said he would move federal agencies from “the Washington Swamp… to places filled with patriots who love America.”

But when he tried such moves before, the effect was to drain know-how, talent and experience from those agencies. That’s what happened in 2019 when Trump moved the headquarters of the Bureau of Land Management to Grand Junction, Colorado, and two agencies within the Department of Agriculture to Kansas City.

“The vast bulk of (headquarters) employees left the agencies,” said Max Stier, president and chief executive of the Partnership for Public Service, a nonpartisan group that promotes serving in government. It led to the loss of “expertise that had been built up over decades,” he said. “It destroyed the agencies.”

A 2021 investigation by the Government Accountability Office found that the BLM move pushed out hundreds of the bureau’s most experienced employees, and sharply reduced diversity, with more than half of black employees in DC opting to quit or retire rather than move to Colorado. The GAO also concluded that the USDA’s decision to move its Economic Research Service (ERS) and the National Institute of Food and Agriculture (NIFA) to Kansas City was “not fully consistent with an evidence-based approach.”

The two USDA agencies do statistical research and analysis. The ERS focuses on areas including the well-being of farms, the effects of federal farm policies, food security and safety issues, the impacts of trade policies and global competition. NIFA funds programs to help American agriculture compete globally, protect food safety and promote nutrition, among other areas.

Verna Daniels had worked for the USDA for 32 years, most of them as an information specialist at the Economic Research Service, when she and her colleagues found out their agency was being relocated in October 2019.

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“I really enjoyed my job. I worked extremely hard. I never missed a deadline,” Daniels said. She said the announcement left her in shock. “Everybody was afraid, and it was happening so fast… We were given three months to relocate to wherever it was or vacate the premises.” She quit rather than uproot her whole family. “It was heart-wrenching.”

The Trump administration said moving the USDA agencies would bring researchers closer to “stakeholders”– that is, farmers. Catherine Greene, an agricultural economist with 35 years at the USDA’s Economic Research Service, called the idea ridiculous. “Every state that surrounds Washington, DC, has farming… I grew up on a hundred-year-old farm in southwestern Virginia.”

“We’ve all dedicated our lives to looking at farming in America, to looking at food systems in America,” Greene said. “I think the goal was to uproot the agency in such a way that most people would have to move on, and most people did. It was highly predictable.”

The other relocated research agency, the National Institute for Food and Agriculture, had 394 employees at the beginning of the Trump administration, said Tom Bewick, acting vice president of the union local for NIFA. Trump imposed a hiring moratorium that left positions unfilled as people moved or retired. By the time the relocation to Kansas City was announced, NIFA was down to 270 employees. “Once it was announced they would move us, we were losing 10 to 20 people a week,” Bewick explained. “We had less than 70 people make the move.” Five years on, he said, “We still are not the same agency, and we’ll never be the same agency we were.”

The USDA said the move to Kansas City would save taxpayers $300 million over 15 years. But the GAO said that analysis didn’t account for the loss of experience and institutional knowledge, the cost of training new workers, reduced productivity and the disruption caused by the move. Including such costs, the Agricultural and Applied Economics Association estimated the move actually cost taxpayers between $83 million and $182 million.

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Greene, at the Economic Research Service, retired rather than move. After Biden took office, the BLM and the two USDA agencies moved their headquarters back to Washington, but also kept open their offices in Grand Junction and Kansas City, respectively. Greene said she worries for federal workers who might face the same choice in a second Trump term. “They mean business,” she said. “They spent four years practicing, and they are ready to rock and roll.”

To Stier, at the Partnership for Public Service, there is a huge gap between the perception and the reality of the role that the civil service plays across the country. “We’ve been doing polling on trust in government, and when you tag on the words, government ‘in Washington, DC,’ the trust numbers crater,” he said.

A close up of American politican Donald Trump.

On the campaign trail, Trump has regularly claimed, without evidence, that Biden and the Department of Justice are stage-managing various prosecutions of him – including state-level indictments in New York over falsifying business records and in Georgia, on charges of election subversion. Trump has used that false claim to say it would justify him using the Justice Department to target his political enemies. He’s said that in a second term he’d appoint a special prosecutor to investigate Biden. He told Univision last year he could have others indicted if they challenged him politically.

Trump tried to use the Department of Justice in this fashion during his previous term, repeatedly telling aides he wanted prosecutors to indict political foes such as Hillary Clinton or former appointees he’d fired, such as former FBI Director James Comey. He also pushed then-Attorney General Bill Barr to falsely claim the 2020 election was corrupt, which Barr refused to do.

In that term, some senior officials at the White House and the Justice Department pushed back against pursuing baseless prosecutions. Their resistance followed a tradition holding that the Justice Department should largely operate independently, with the president setting broad policies but not intervening in specific criminal prosecutions.

But in a second term, Trump could upend that tradition with the help of acolytes such as Jeffrey Clark, a former Justice official who faces disbarment in DC and criminal charges in Georgia for trying to help overturn the 2020 election results. As Trump tried to hang onto the White House in his final weeks in office, he pushed to make Clark his acting attorney general, stopping only after senior Justice Department leaders threatened to resign en masse if he did so.

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Last year, Clark published an essay titled “The U.S. Justice Department Is Not Independent” for the Center for Renewing America, a conservative nonprofit founded by Russell Vought. Clark also helped draft portions of the Project 2025 blueprint for a second Trump term, including outlining the use of the Insurrection Act of 1807 to deploy the military for domestic law enforcement, as first reported by the Washington Post.

Trump also has talked about bringing to heel other parts of the federal government.

“We will clean out all of the corrupt actors in our National Security and Intelligence apparatus, and there are plenty of them,” Trump said in a video last year. “The departments and agencies that have been weaponized will be completely overhauled so that faceless bureaucrats will never again be able to target and persecute conservatives, Christians, or the left’s political enemies.”

Project 2025’s blueprint envisions dismantling the Department of Homeland Security and the FBI; disarming the Environmental Protection Agency by loosening or eliminating emissions and climate-change regulations; eliminating the Departments of Education and Commerce in their entirety; and eliminating the independence of various commissions, including the Federal Communications Commission and the Federal Trade Commission.

The project includes a personnel database for potential hires in a second Trump administration. Trump’s campaign managers have not committed the former president to following the Project 2025 plans, should he win the White House. But given the active involvement of Trump officials in the project, from Vought and Clark to former Chief of Staff Mark Meadows, senior adviser Stephen Miller, Peter Navarro and many others, critics say it offers a worrisome roadmap to a second Trump term.

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“Now they really understand how to use power, and want to use it to serve, not just Republican partisans, but Donald Trump,” said Baer.

On the campaign trail, Trump leaves little doubt about what he’ll try to do.

“We will put unelected bureaucrats back in their place,” Trump told his supporters at one rally last fall. “The threat from outside forces is far less sinister, dangerous and grave than the threat from within.”

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Deutsche Bank braces for €1.3bn hit to profits from Postbank litigation

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Deutsche Bank braces for €1.3bn hit to profits from Postbank litigation

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Deutsche Bank warned late on Friday that up to a fifth of its expected pre-tax profit in 2024 might be wiped out as it braces for defeat in parts of a long-running shareholder lawsuit over its ill-fated 2010 takeover of domestic rival Postbank.

The profit warning comes a day after Deutsche Bank reported its highest quarterly profit in 11 years, sending its shares up more than 8 per cent to their highest level in seven years.

But on Friday the lender disclosed that it would book a provision of up to €1.3bn after a court in Cologne indicated that the bank was poised to lose elements of a complex lawsuit over what it paid other shareholders in German retail lender Postbank for the stock it did not already own.

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Deutsche said it would now seek to cover this risk, but did not disclose a final figure to be set aside. It warned that “the full amount of all claims, including cumulative interest, is approximately €1.3bn”.

This compares with the €6.8bn in pre-tax profit that analysts expect in the lender’s full-year results and would knock 20 basis points from its common equity tier one — a key benchmark of balance sheet strength — pushing it down to 13.25 per cent.

The court’s assessment signals yet another Postbank-related hitch for Deutsche. In late 2023, it clashed with Germany’s financial watchdog, BaFin, over the botched integration of Postbank’s IT systems. That process resulted in many customers being locked out of their accounts, heavy disruption to internal workflows and a dramatic spike in client complaints to the regulator.

BaFin dispatched a special monitor to oversee Deutsche’s work on improving matters and publicly rebuked the lender. Deutsche said on Thursday that most of the issues had been resolved, adding that the financial hit to the bank from the disruption so far stood at more than €100mn.

Former Postbank shareholders have spent 14 years claiming that Deutsche Bank paid too low a price for their holdings. They argue that the bank had gained de facto control years before while it was in the process of buying out the remaining minority investors. It first took a stake in 2008 with an option to increase this later, which it did in three stages up to 2010

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They maintain that Deutsche ignored an obligation under German law to make a mandatory takeover offer to the remaining shareholders at a time when Postbank’s shares were trading at €57.25, against the €25 Deutsche eventually paid.

The claims were originally struck down by courts in Cologne in 2011 and 2012, but these rulings were later nullified by Germany’s Federal Court of Justice. Deutsche Bank lost a subsequent trial in 2017 but lodged an appeal, resulting in an another series of lawsuits.

The lender is now expecting to lose the final round as the Cologne court “indicated that it may find elements of these claims valid in a later ruling”.

The bank said on Friday that it “continues to disagree strongly” with the plaintiffs’ view. It added that it had not yet fully analysed the legal arguments or the financial impact of the court’s opinion but that while second-quarter and full-year profits would take a hit, management “does not expect a significant impact on the bank’s strategic plans or financial targets”.

Most of Deutsche’s published financial goals — such as lowering its cost-income ratio to 62.5 per cent and lifting its return on tangible equity to more than 10 per cent — are targeted for 2025, while the one-off effect from the Postbank issue will be felt this year.

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But the provision could have an impact on the lender’s October 2023 promise to increase dividends and share buybacks by 2025 by an additional €3bn on top of the €8bn it has already committed to returning.

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