Deutsche Bank bullish on earnings after declining profits

  • Longest quarterly earnings streak since 2012
  • Stocks open to the upside but early gains collapse
  • Investment banking income falls as expected

FRANKFURT, July 28 (Reuters) – Deutsche Bank (DBKGn.DE) posted its fourth consecutive quarterly profit on Wednesday for the first time in nearly a decade and raised its income outlook despite a decline in activity at its bank of ‘investment.

Germany’s largest bank’s second-quarter profits exceeded expectations and outperformed rivals in fixed income trading. The results also benefited from a sharp drop in provisions for loans at risk of souring during the pandemic.

The strong second quarter is good news for CEO Christian Sewing, who launched a major restructuring in 2019 to bring the bank back to profitability after a series of regulatory failures and € 8.2 billion ($ 9.7 billion ) losses over the past 10 years.

Sewing said in a note to staff: “The right strategy and hard work pays off.”

The bank’s executives have said they are optimistic about its outlook, and Sewing told analysts that next year’s revenue is likely to be higher than expected, possibly exceeding € 25 billion instead of the 24 billion. , 4 billion euros previously targeted.

Deutsche Bank shares rose 4.7% in early trades. They were up 0.7% at 1229 GMT.

Net profit attributable to shareholders amounted to € 692 million, compared to a loss of € 77 million a year earlier. The figures were better than analysts’ expectations for a profit of 372 million euros.

“Deutsche Bank’s positive credit restructuring is on track,” said Michael Rohr, analyst at Moody’s.

The bank has decided to drop a key cost target, which aims to cut costs to € 16.7 billion by 2022. The move came after Deutsche Bank reported a number of unexpected expenses in recent times. month.

Deutsche has said it will now focus on a 70% cost-to-income ratio target.

The headquarters of the German Deutsche Bank are pictured in Frankfurt, Germany on September 21, 2020. REUTERS / Ralph Orlowski

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The CEO of Sewing said, “Our priority now is to continue our disciplined execution of the transformation, quarter by quarter.”

Deutsche Bank’s results were supported by a decrease in provisions made to cushion the fallout from the coronavirus pandemic. Provisions for credit losses amounted to € 75 million, compared to € 761 million a year earlier.

The investment banking advisory business stood out in the midst of a boom in transactions, with turnover up 166% to 111 million euros. An increase in income and asset management fees also helped improve the bottom line.

The performance of Deutsche’s investment bank, the group’s largest revenue generator, was a major contributor to the bank’s performance, which enabled the bank to make a small profit for 2020, its first after five years of losses.

Gains in investment banking business enabled Deutsche to post its strongest quarter in seven years at the start of 2021.

The turnover of this activity fell by 11% in the second quarter compared to the previous year. This is the biggest drop in investment banking revenue since the bank’s overhaul two years ago, but U.S. competitors also experienced a weaker quarter.

Barclays (BARC.L), which also released results on Wednesday, beat expectations for high commissions in investment banking, but its fixed income, currency and commodities business was down from a strong first half of the year ago. a year.

Revenues from Deutsche’s fixed income and currency selling and trading activities fell 11% to € 1.8 billion. But the markets divisions of major U.S. investment banks saw a 28% drop in revenue, according to research by analysts at Barclays.

Couture in his memo compared the bank’s turnaround process to a marathon: “The 30 kilometer (19 mile) mark is where it really starts to hurt. But we also know it’s worth it. to move forward. “

($ 1 = 0.8470 euros)

Reporting by Tom Sims and Patricia Uhlig; Editing by Kirsti Knolle, Maria Sheahan, Sherry Jacob-Phillips and Jane Merriman

Our Standards: Thomson Reuters Trust Principles.

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