A sign for Deutsche Bank AG at the bank’s branch in the financial district in Frankfurt, Germany, on Thursday, February 2, 2023.
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Deutsche Bank on Wednesday beat expectations in its return to profits in the three months through September, after snapping its 15-quarter profit streak in the second quarter.
Net profit attributable to shareholders amounted to 1.461 billion euros ($1.58 billion) during the third quarter, compared to 1.047 billion euros expected in a survey conducted by LSEG of analysts.
Revenues amounted to 7.5 billion euros, versus LSEG analysts’ expectations of 7.338 billion euros.
Other highlights of the third quarter included:
- Profit before tax amounted to €2.26 billion, up 31% year-on-year.
- Provisions for credit losses amounted to €494 million, compared to €245 million in the same quarter 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 was 10.2% (or 7.6% if adjusted for lender litigation provisions), up from 7.3% year over year.
Germany’s largest bank posted a loss of 143 million euros in the second quarter, at which time it announced it would not embark on a second share buyback program this year, taking into account an allowance for the protracted lawsuit over its takeover of Postbank. to divide. Since then, about 60% of the plaintiffs in the lawsuit, which centered on allegations that Deutsche Bank underpaid for its purchase, settled with the German bank in August.
Deutsche Bank said the partial release of litigation provisions of €440 million in the third quarter helped boost earnings, and the bank has now directed a share buyback order – a move previously halted by Postbank’s legal actions.
European lenders have been boosted by a wave of share buybacks and dividends in recent years – and now face pressure to deliver earnings growth to keep pace with the profitability of their US peers in a low interest rate environment, following the ECB’s decision. The bank began easing monetary policy over the summer.
“Looking back, while the industry has cut costs and kept credit quality high, the improvement in returns since 2021 appears to be largely due to higher interest rates,” McKinsey analysts warned in the consultancy’s 2024 Annual Review of Global Banking. They point out that, in order to maintain current tangible ROE margins, banks will need to reduce costs about 2.5 times as quickly as revenues.
In February, Deutsche Bank launched a large-scale operation A boost to save costs The bank is set to cut its headcount by 3,500 jobs by 2025 – a figure that includes 800 cuts announced the previous year.
Market participants are intensely scanning the broader banking sector, after Deutsche Bank distanced itself from the prospect of a long-awaited merger with local rival Commerzbank, which now faces a potential takeover by Italian bank UniCredi.
Other European banks are also scheduled to report third-quarter earnings in the coming days, with Barclays to report on Thursday and Swiss giant UBS to report earnings next week.
This breaking news story is being updated.
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