After a surprising profit in the billions in the third quarter, Deutsche Bank sees itself prepared for the impending economic downturn. “Deutsche Bank is right on track to achieve its goals for 2022,” said CEO Christian Sewing on Wednesday in Frankfurt.
With the solid balance sheet, “we feel very well prepared for what lies ahead,” he wrote in a letter to employees. CFO James von Moltke spoke of a “strong foundation” with a view to the coming year.
Above all, higher interest rates gave the money house a boost in the period from July to September. Before taxes, the institute earned around 1.6 billion euros – almost three times as much as a year earlier and, according to the information, as in no third quarter since 2006. The bottom line is that the shareholders made a profit of a good 1.1 billion euros, almost six times as much as in the same period last year. Analysts had expected significantly less on average.
Sewing continues to expect an 8 percent return on tangible equity for the full year, which analysts previously thought was unrealistic. In the first nine months, this figure was 8.1 percent. A year earlier it had only reached 4.8 percent. By 2025 it should even be more than ten percent. Income – i.e. the bank’s total income – is expected to increase to around 30 billion euros by 2025. Despite the current uncertainty, CFO von Moltke was confident that the bank was on track to achieve its 2025 targets.
Fewer job cuts despite restructuring
In the third quarter, revenues rose 15 percent to 6.9 billion euros. All core business areas contributed to the growth. In the first nine months, total revenue increased by 7 percent to 20.9 billion euros. The continued good business development opens up the possibility of exceeding the previous forecast for group earnings of 26 billion to 27 billion euros for the full year 2022, the institute announced. Deutsche Bank benefited primarily from higher interest rates. In addition to net interest income, income from trading in fixed-income securities in particular also surged.
In view of the looming recession, the bank set aside 350 million euros for non-performing loans in the third quarter – around three times as much as a year earlier. The institution also reduced its exposure to Russia.
The job cuts decided in 2019 at the beginning of the restructuring of the group are less severe than originally planned. The number of full-time positions at the end of the quarter rose by 1,641 to 84,556 compared to the previous quarter, primarily due to the hiring of university graduates. The number of jobs was originally supposed to be reduced by 18,000 to 74,000 worldwide by the end of 2022.
No comment on searches
“The company is doing better than we expected in 2019,” said von Moltke. Activities that had previously been outsourced to external service providers were also integrated into the company. The Board of Management had already given up on its original savings target in the summer due to high inflation and costs in connection with Russia’s war of aggression in Ukraine. If the bank only has to spend 70 cents on costs for every euro it collects by then this year, the expense should now be in the lower to mid 70s. And this despite the fact that the yields are bubbling up more than expected.
In the first nine months, consolidated profit after deduction of interest payments to the holders of subordinated bonds increased by 80 percent to 3.2 billion euros. The nine-month profit before tax was 4.8 billion euros, the highest in eleven years.
Moltke did not comment on the recent searches at Deutsche Bank in the tax scandal surrounding cum-ex stock deals. The bank is fully cooperating with the authorities, he affirmed. In cum-ex transactions, several participants pushed blocks of shares with (“cum”) and without (“ex”) dividend rights back and forth around the dividend record date. As a result, tax offices reimbursed capital gains taxes that had not been paid at all. The state suffered billions in damage. Public prosecutors have been investigating numerous financial institutions for years.
