Deutsche Bank slashes its 2nd-quarter losses as investment-banking revenues surge 46%

Reuters

• Deutsche Bank grew its revenues and cut its losses in the second quarter, but its net interest income didn’t meet Wall Street’s expectations.
• Net revenues rose in the corporate and investment banking divisions, but fell in the private banking segment and asset management divisions.
• Deutsche Bank also boosted its provision for credit losses by 50% to 761 million euros in the three-month period in response to the coronavirus pandemic.
• “We continued to execute on our strategy and made further tangible progress against our objectives despite the challenges associated with the COVID-19 pandemic,” CEO Christian Sewing and his team said in the earnings release.
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Deutsche Bank reported a slight increase in revenues and dramatically narrowed its losses in the second quarter as its transformation efforts paid off. However, its net interest income fell short of the consensus estimates of analysts polled by Bloomberg.

“We continued to execute on our strategy and made further tangible progress against our objectives despite the challenges associated with the COVID-19 pandemic,” CEO Christian Sewing and his team wrote in the earnings release.

Deutsche Bank’s stock rose just over 1% in early trade Wednesday, while Germany’s benchmark DAX index traded slightly lower.

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Here are the key numbers:

• Net interest income: 3.093 billion euros versus 5.94 billion euro estimated
• Net income: 254 million versus 168 million estimated
• Earnings per share: 0.12 euros versus -0.03 euro estimated

Deutsche Bank grew net revenues by 1.4% year-on-year to about 6.3 billion euros ($7.4 billion). The increase reflected higher net revenues from the corporate bank and the investment bank, offset by lower net revenues in the private bank and the asset management division.

The German banking giant slashed its non-interest expenses by about 23%, which helped it swing to a pre-tax profit of 158 million euros, compared to a pre-tax loss of 946 million euros in the second quarter of 2019.

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That translated into a loss of 77 million euros for shareholders – a major improvement from a loss of 3.3 billion euros in the comparable period.

Deutsche Bank grew its loans by 5.4% to 442 billion euros, and its deposits were only slightly down at 573 billion euros. It also ramped up its provision for credit losses by 50% to 761 million euros in the three-month period to reflect the higher risk of lending during the pandemic.

Among its divisions, the investment bank was the standout performer. Net revenues surged 46% to 2.7 billion euros there as sales and trading revenues in the fixed income and currency subdivision jumped 39%, and origination and advisory revenues leapt 73%.

Net revenues also rose 3% to 1.3 billion euros in the corporate banking division, reflecting higher credit recoveries and portfolio rebalancing.

However, net revenues fell 5% in the private bank to just under 2 billion euros following the merger of several divisions.

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Net revenues also dropped 8% to 549 million euros in the asset management division as both management fees and performance and transaction fees dropped.

Deutsche Bank’s fifth major division, its capital release unit, swung from 221 million euros in net revenues in the second quarter of 2019 to negative net revenues of 70 million euros last quarter.

That was due to derisking costs as well as the bank’s exit from equities sales and trading and its efforts to resize its fixed-income business.