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© Reuters. File photo: The headquarters of Deutsche Bank, Germany, was taken on September 21, 2020 in Frankfurt, Germany. REUTERS/Ralph Orlowski
Authors: Tom Sims and Patricia Ulig
Frankfurt (Reuters)- Deutsche Bank (DE:) After outperforming competitors in fixed-income transactions on Wednesday, profits in the second quarter soared beyond expectations and raised revenue expectations for next year.
The profit data is good news for CEO Christian Sewing, who initiated a major restructuring in 2019 to restore the bank to profitability after a series of regulatory failures.
The sewing worker said in a memo to employees: “The right strategy and hard work will indeed pay off.”
Deutsche Bank has lost approximately US$8.2 billion in the past 10 years, but Wednesday’s performance marked the group’s fourth consecutive quarter of profitability, the longest consecutive loss since 2012.
Treasurer James von Moltke told reporters that he is optimistic about the bank’s prospects and that next year’s revenue may be higher than previously predicted-closer to 25 billion euros (29.52 billion US dollars) than the previous target of 24.4 billion euros.
Deutsche Bank’s stock price rose 4.7% in early trading. By 0820 GMT, they were up 0.7%.
Net profit attributable to shareholders was 692 million euros, compared with a loss of 77 million euros in the same period last year. These figures are better than analysts’ expectations of a profit of 372 million euros.
Moody’s analyst Michael Roll said: “The active credit restructuring of Deutsche Bank is steadily on the right track.”
Chart: Deutsche Bank results-https://graphics.reuters.com/DEUTSCHEBANK-RESULTS/lgpdwmokgvo/chart.png
The bank decided to abandon a key cost target, which aims to reduce costs to 16.7 billion euros by 2022. The move came after Deutsche Bank flagged a series of unexpected costs in recent months.
Deutsche Bank stated that it will now focus on a 70% cost-to-income ratio target.
CEO Sewing said: “Our top priority now is to continue to strictly implement the transformation on a quarterly basis.”
Deutsche Bank’s performance is supported by a reduction in reserves used to cushion the impact of the coronavirus pandemic. The credit loss provision was 75 million euros, down from 761 million euros in the same period last year.
The investment bank’s advisory business performed well in the transaction boom, with revenue soaring 166% to 111 million euros. Increases in asset management income and expenses also help increase profits.
The performance of Deutsche Investment Bank has been affected to a large extent, the investment bank is the group’s largest source of income, helping the bank to maintain a meager profit in 2020, which is the first profit after five years of losses.
The growth of investment banking business enabled Deutsche Bank to achieve its strongest quarterly performance in seven years in early 2021.
The business’s revenue in the second quarter fell 11% year-on-year. This was the biggest drop in investment banking revenue since the bank was reorganized two years ago, but the quarterly performance of US competitors was also weak.
Chart: Investment Banking Revenue-https://graphics.reuters.com/DEUTSCHEBANK-RESULTS/zdpxoyxddvx/chart.png
Revenue from Deutsche Bank’s fixed income and currency sales and trading businesses fell 11% to 1.8 billion euros. But the revenue of the market sector of major US investment banks fell by 28%. Barclays (Lang:).
In his employee memo, Sewing likened the bank’s turnaround process to a marathon: “The 30-kilometer (19-mile) mark is where it really started to hurt. But we also knew it was worth continuing to work hard.”
(1 USD = 0.8470 Euro)
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