Deutsche Bank AG was able to survive a period of slowing trading, demonstrating a result that largely exceeded analysts’ expectations about the lender’s ability to cope with these adverse circumstances.
The result of this financial institution, according to experts, is the first evidence that investment banks in Europe were able to overcome the difficulties observed during the second quarter of this year, which became very difficult for the business community.
Fixed income trading in the case of Deutsche Bank decreased by 10% in the last quarter compared to the level of the idem period last year. At the same time, most of the major Wall Street lenders showed a drop of a similar indicator, equal to 13%.
The expenses of the financial institution in the second quarter increased by 15%, which exceeds the initial expectations of analysts. The growth of this indicator is largely due to court costs and severance payments.
The bank’s chief executive Officer, Christian Sewing, announced his intention to increase revenue and profitability. Late on Tuesday evening, July 25, he announced a $500 million share buyback. In this way, Christian Sewing is trying to increase the value of the lender’s shares.
Currently, the bank has to balance investments, which requires cost reduction. This is happening against the background of a slowdown in the pace of trade and the appearance of signs that the degree of influence of the effect of an increase in interest rates is decreasing.
Deutsche Bank announced the purchase of the British corporate brokerage company Numis Plc in the spring of this year. This transaction worth $526 million is the largest for a financial institution since 2009. The Bank expects that the underwriting and consulting business after the industry-wide downturn will begin to gain momentum as part of the movement toward recovery. Many Wall Street giants have surpassed estimates for their relevant business, which is evidence of the beginning of a revival.
Deutsche Bank on Wednesday, July 26, published a very optimistic forecast about the expected annual revenue. The financial institution counts that this indicator will be fixed in the upper half of the range of preliminary expectations. The dynamics of the corporate lender compensate for the moderate forecast of the results of the investment bank, both of which are part of the ownership structure of Deutsche Bank.
At the same time, the financial institution expects an increase in costs due to legal costs and the consequences of the transaction with Numis. Christian Sewing says that the bank is currently operating in conditions of rising prices. According to him, this circumstance actualizes the need for strict discipline in dealing with issues of expenses. He also noted that this tactic is the only way to ensure financial freedom of action for further growth and to ensure an acceptable level of investment in the lender’s business.
Deutsche Bank believes that in the near future, the profitability indicator will demonstrate growth dynamics as a result of lending and consulting services activities against the background of a recovery in debt sales. This line of business is a small part of the overall structure of the lender’s functioning.
Last month, Deutsche Bank reported the probability of a 15-20% drop in trading revenue following the results of the second quarter. The head of the financial institution said that the second half of the year will be more positive in terms of performance and linked this optimistic forecast with the fact that the problem of the debt ceiling has been solved in the United States.
The bank’s corporate division recorded revenue growth of 25% in the second quarter. The private lender, part of the Deutsche Bank structure, increased this indicator by 11% over the same period. These results were partly due to the effect of the increase in interest rates, but this factor is gradually beginning to lose its influence on financial indicators. On Tuesday, July 25, it became known that in the eurozone, the demand for loans fell to record lows.
Christian Sewing aims to ensure a return on equity of at least 10% by 2025 and said that the final result could be even higher.
As we have reported earlier, Fed Fines Deutsche Bank.
