Despite the best start to the year since 2013, Deutsche Bank is tightening its austerity plan. In order to drive profits further up, costs are to be reduced even more than previously targeted, as the Frankfurt-based Dax group announced on Thursday. “Strict hiring restrictions in non-customer areas”, “targeted job cuts in management levels”, “slimming of the construction financing business” and further downsizing of the technology center in Russia are planned.
In the first quarter, the pre-tax profit of Germany’s largest bank increased by twelve percent compared to the first three months of the previous year to a good 1.85 billion euros. According to Deutsche Bank, this is the highest quarterly result in ten years. The bottom line is that the shareholders accounted for a surplus of around 1.16 billion euros after 1.06 billion euros a year earlier.
Planned cost savings of over 2.5 billion
Overall, the results show that the bank is on the right track to “achieving or exceeding the targets set by the Board of Management for 2025,” said CEO Christian Sewing. “We want to implement our strategy even faster with the additional measures announced today.” The additional cost savings should now add up to 2.5 billion euros, previously 2.0 billion euros had been targeted. In areas that are not directly related to customers, around five percent of management jobs are to be eliminated. It’s about 800 people, Sewing explained in a conference call.
Deutsche Bank had already announced on Wednesday evening that the Management Board would be reduced from ten to nine members. In addition to Karl von Rohr, head of private customers, who is leaving at the end of October, Christiana Riley, the board member responsible for America, is also leaving. She is leaving the company for the Annual General Meeting on May 17th. Claudio de Sanctis will be the new private customer manager by November 1 at the latest.
CFO James von Moltke referred in the telephone conference to the reduced demand for real estate loans in view of the rise in interest rates. The bank will “modestly hold back” when granting building loans – also because the financial regulator Bafin has been prescribing a new capital buffer for residential real estate loans since last spring. However, construction financing remains “an absolute key product in our customer relationship,” assured von Moltke.
Good performance thanks to higher interest rates
Deutsche Bank owes its surprisingly good performance in the first quarter not least to the significantly higher interest rates. Net interest income jumped by almost a fifth to EUR 3.4 billion. Although the income of the in-house investment bank collapsed compared to the unusually strong prior-year period, the group’s total income grew by five percent to almost 7.7 billion euros. Meanwhile, the bank set aside 372 million euros for impaired loans. That was a good quarter more than a year earlier, when the Russian war of aggression against Ukraine had just begun and thrown the global economy into turmoil.
Among the group divisions, only the in-house corporate bank was able to increase its pre-tax profit: with 822 million euros, it even threw out more than three times as much as a year earlier. In the investment bank, on the other hand, pre-tax profit collapsed by 42 percent, and in the retail bank it fell by 29 percent due to higher risk provisions for impaired loans abroad. The fund subsidiary DWS brought the group 115 million euros before taxes, just over half as much as in the same period last year.
After the Dax group had made its highest profit in 15 years in 2022, shareholders can soon expect a share buyback program in addition to a dividend. “In view of the good results of the first quarter and the further improved capital ratios, the management has initiated a dialogue with the supervisory authorities on share buybacks in the current year,” Deutsche Bank said. Management estimates that buybacks should begin in the second half of 2023.
