On Wednesday, October 23, the value of Deutsche Bank shares was on a downward trajectory, as the return of this financial institution to profit in the third quarter of the current year did not turn out to be something that impresses or could potentially impress.
Net profit attributable to shareholders of the mentioned lender for July-September 2024 was fixed at 1.461 billion euros ($1.58 billion). It is worth noting that the results of the LSEG poll of analysts provided that the corresponding figure for the specified period would amount to 1.047 billion euros.
The revenue of the financial institution for the third quarter of the current year was fixed at 7.5 billion euros. This indicator showed an increase of 5% compared to the result for the same period in 2023. At the same time, the forecast of LSEG analysts provided that the bank’s revenue for the third quarter of the current year would be fixed at 7.338 billion euros.
In July-September 2024, the lender generated a profit before tax of 2.26 billion euros. This indicator increased by 31% compared to the result for the third quarter of last year.
Deutsche Bank’s provision for credit losses for the mentioned period amounted to 494 million euros. It’s worth noting that in the third quarter of last year, the corresponding figure was fixed at around 245 million euros.
The CET 1 capital ratio, a measure of bank solvency, was 13.8% last quarter. In the second quarter of 2024, this figure was fixed at 13.5%.
Deutsche Bank also reported a return on tangible equity of 10.2% for the third quarter of the current year. For the same period last year, the corresponding figure was fixed at 7.3%. Besides, it is worth noting that the return on tangible equity for the third quarter of 2024, adjusted for the lender’s legal costs, amounted to 7.6%.
RBC analysts said in their note that the increase in provisions for credit losses was disappointing, but at the same time, it is not totally unexpected. These experts also described the revenue figures of core units of a financial institution as slightly soft. At the same time, they noted that the corresponding result of investment banking is stronger.
RBC analysts said that given the relatively strong run into numbers, stocks may weaken slightly on the back of data for the third quarter of 2024.
On Wednesday morning, the lender’s securities fell by 3.3%.
It is worth mentioning that in the second quarter of 2024, Deutsche Bank, which is the largest organization in the German banking sector, faced losses of 143 million euros. At that time, the lender stated that it would not embark on a second share buyback program this year and factoring in a provision for its long-running lawsuit over the acquisition of its Postbank unit.
About 60% of the plaintiffs involved in the litigation, based on the allegation that Deutsche Bank underpaid for its specified purchase, settled with the financial institution in August.
The Cologne Higher Regional Court ordered Deutsche Bank to pay additional compensation to Postbank investors. In this case, the decision applies to those investors who stated that Deutsche Bank did not pay them extra when acquiring the mentioned lender in 2010. They stated that instead of 25 euros per share, they should have been paid 57.25 euros. It is worth noting that the indicator, which investors described as fair, was relevant as of 2008. Deutsche Bank made payments in 2010. At the same time, according to investors, in this case, the lender should have been guided by the indicators of 2008, when it first acquired a stake in Postbank. The total amount of compensation that claimants are pushing for is 100 million euros.
Deutsche Bank said it would analyze the court’s decision. The financial institution also noted the availability of provisions that cover all outstanding claims of the plaintiffs. Moreover, in the relevant context, the lender stated that any additional financial impact would be limited to further interest accruing currently approximately 2 million euros per month.
The bank’s chief financial officer, James von Moltke, said on Wednesday during a conversation with media representatives that this year the lender plans to really turn the page with all of the legacy items it had over time. Also, in this context, it was noted separately that Deutsche Bank does not want to surprise investors with the type of provision that had to build in the second quarter of 2024.
The financial institution stated that the partial release of 440 million euros of litigation provisions in the third quarter of 2024 helped boost profit. The bank has now guided it has apply for a share repurchase. It is worth noting that this action is stalled by the Postbank legal proceedings.
Deutsche Bank chief executive officer Christian Sewing said on Wednesday that the financial institution will continue on the path of profitable growth and exceed its initial goals for distributing capital to shareholders. James von Moltke, during a conversation with journalists, clarified that in this case, it means buybacks, which the lender intends to execute next year.
The financial institution noted that the revenue of its investment bank units for the third quarter of 2024 was fixed at 2.5 billion euros. This indicator showed an increase of 11% compared to the result for the same period last year. It is worth noting that the corresponding data is flagging growth in lenders’ fixed income and currency units.
Also, in the third quarter of the current year, the bank recorded an increase in asset management net revenue. The corresponding figure was fixed at 660 million euros. In this case, the year-on-year growth was 11%.
James von Moltke noted that two of the mentioned units of the financial institution provided the lender with a standout performance in the third quarter of the current year. He also stated that corporate and private banks are doing what was expected in 2024. In this case, it is implied that the mentioned banks managed to deal with the sort of back-end of the cycle of interest rates and offset the interest rate pressure now with growth in fee and commission income.
In the context of comments on the broader macroeconomic situation, James von Moltke acknowledged some disappointment with the pace of recovery currently being demonstrated by the German economic system. Also, as part of the relevant reasoning, he stated that the situation that formed in the third quarter of the current year has carried into the fourth quarter.
Speaking about the presidential elections of the United States, which will take place next month, in the context of the impact on the economic dynamic, James von Moltke noted that there is always a certain volatility around such events. It is worth noting that the results of the mentioned elections can ripple into foreign currency. James von Moltke drew special attention to the importance of the expectations regarding policy changes after the election of the President of the United States.
JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan said in their note that it seems that the difficult economic situation in Germany has already become a factor affecting Deutsche Bank’s revenue. In their opinion, the relevant circumstance can be reflected in such figures as higher provisions and increased provision guidance.
Christian Sewing stated that the increase in the number of souring loans was only temporary. He also noted that provisions for commercial real estate have started to show a decline again. Christian Sewing vowed to increase profitability and return 8 billion euros to shareholders over the medium term, building out fee businesses as the tailwind from higher interest rates fades.
It is worth noting that in recent years there has been a steady tendency of improvement in the performance of European banks. The corresponding dynamic of creditors’ results is largely related to spate share buybacks and dividends. Currently, European financial institutions are faced with the need to deliver earnings growth. In this case, the goal is to keep up with lenders based in the United States in the environment of monetary easing, which implies cutting interest rates. It is worth mentioning that the European Central Bank started lowering the cost of borrowing in June. The Fed began easing monetary policy in September.
Analysts at McKinsey said in the consulting company’s Global Banking Annual Review 2024 that looking back, it can be argued that the industry has reduced costs and at the same time kept high credit quality. In this case, it means the results demonstrated by the banking sector. Also, the mentioned analysts said that the improvement in returns since 2021 appears to be largely owed to rising interest rates.
Deutsche Bank, whose share value has increased by almost 30% since the beginning of the current year, began implementing large-scale cost-saving measures in February. Within the framework of the relevant action concept, it is envisaged to lower the number of staff of a financial institution by 3,500 roles by 2025. It is worth noting that this figure includes 800 cuts announced last year. The financial institution reported that its full-time workforce currently stands at 90,236 people. This figure was recorded after adding 766 staff during the third quarter of 2024.
Market participants are closely monitoring the banking sector as a whole after the mentioned financial institution distanced itself from the prospect of a long-awaited merger with domestic competitor Commerzbank, which may soon be acquired by Italian Unicredit. James von Moltke stated that Deutsche Bank looks at the mentioned potential deal with equanimity.
Shortly, reports on activities in the third quarter of 2024 will be published by other European lenders. For example, Barclays, based in the United Kingdom, is expected to release relevant information on Thursday, October 24. UBS, the giant of the Swiss banking sector, will report its results for the third quarter of 2024 next week.
