A Deutsche Bank AG sign at a bank branch in the financial district of Frankfurt, Germany, Thursday, February 2, 2023.
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Deutsche Bank on Wednesday said its profit recovery in the three months to September was better than expected, after ending 15 straight quarters of profits in the second quarter.
Net profit attributable to shareholders for the third quarter was 1.461 billion euros ($1.58 billion), compared to the 1.047 billion euros expected in a survey of analysts by LSEG.
Sales reached 7.5 billion euros, compared to LSEG analysts' estimate of 7.338 billion euros.
Other third quarter highlights include:
- Pre-tax profit rose 31% year-on-year to 2.26 billion euros.
- Provisions for credit losses amounted to 494 million euros, up from 245 million euros in the same period last year.
- The CET 1 capital ratio, a measure of banks' solvency, was 13.8%, up from 13.5% in the second quarter.
- Return on tangible equity amounted to 10.2% (7.6% adjusted for lender litigation provisions), up from 7.3% in the prior year period.
Germany's largest financial institution posted a loss of 143 million euros in the second quarter, announcing at the time that it would not embark on a second share buyback program this year and halting the acquisition of Postbank. The company had included provisions for the long-term litigation surrounding the issue. Split. Approximately 60% of the plaintiffs in the case allege that Deutsche Bank underpaid them for the acquisition, which they subsequently settled with in August.
“We're really trying to turn the page this year on all the legacy items that we've had over the years, because we're trying to get investors off the ground with the kind of reserves that we had to build in the second quarter. Because we don't want to be surprised,'' Deutsche Bank Chief Financial Officer James von Moltke told CNBC's Carolyn Ross on Wednesday.
Deutsche Bank said profits were boosted by the partial waiver of a 440 million euro lawsuit clause in the third quarter, and the bank is now instructing to apply for a share buyback. Until now, it had been blocked by Postbank's legal proceedings.
“We will continue our profitable growth path and exceed our initial targets for capital distribution to shareholders,” Deutsche Bank CEO Christian Sewing said on Wednesday. Von Moltke confirmed to CNBC that these are share buybacks the bank plans to carry out next year.
The company also noted that revenue from its investment banking division rose 11% year-on-year to 2.5 billion euros, hampering growth in its fixed income and currencies division. Net revenue for the Wealth Management division was 660 million euros, also up 11% year-on-year.
Mr. von Moltke said the two divisions delivered the bank's “outstanding performance” in the third quarter, with corporate and private banks also “growing up to what we expected this year to be dealing with kind of the back end of the interest rate cycle.” It has achieved the desired results,” he said. And increased fee income has been able to offset interest rate pressures. ”
Touching on the broader macro framework, Governor von Moltke on Wednesday acknowledged some disappointment with the pace of economic recovery in Deutsche Bank's home country, Germany, and said the situation in the third quarter is likely to change in the fourth. It was evaluated that the same was carried over.
“There's always a degree of volatility in an event like an election that's just a few weeks away,” he said, referring to the upcoming vote in the United States, where the results could spill over into foreign currencies. “And then, of course, there's also the reaction to expectations of policy change after the election. So that's pretty encouraging for us.”
The performance of European financial institutions has been strengthened in recent years by a series of share buybacks and dividends, but now, in an environment of lower interest rates following the European Central Bank policy, they are struggling to grow profits in line with the profitability of their US peers. Facing pressure to achieve. Banks began easing monetary policy over the summer.
“In retrospect, the industry has cut costs and kept credit quality high, but the improvement in profitability from 2021 onwards appears to be driven largely by rising interest rates,” analysts at McKinsey & Co., a global consulting firm, said in a statement. Banking Annual Review 2024 warns as follows: To maintain current ROTE (return on tangible equity) margins, banks must reduce costs approximately 2.5 times faster than revenue declines.
Deutsche Bank embarked on a massive rally in February, with its stock price up nearly 30% year-to-date. Cost reduction push It plans to cut 3,500 jobs at financial institutions by 2025, including 800 job cuts announced the previous year. The bank added 766 people in the third quarter, bringing its full-time workforce to now 90,236.
Market participants are more concerned after Deutsche Bank distanced itself from a possible long-awaited merger with domestic rival Commerzbank, which is facing a possible takeover by Italy's UniCredit. We are passionately researching the broad banking sector. Von Moltke said Deutsche Bank was “calmly” considering the possibility of a merger.
Other European banks are also expected to report third-quarter results in the coming days, with Barclays due on Thursday and Swiss giant UBS next week.
Correction: This story has been amended to correct the source of the quote from Christian Sewing.
