Deutsche Bank returned to profit in the third quarter, beating expectations

Robert Novoski

Deutsche Bank AG sign at a bank branch in the financial district of Frankfurt, Germany, on Thursday, February 2, 2023.
Bloomberg | Bloomberg | Getty Images

Deutsche Bank on Wednesday beat expectations in its profit return in the three months to September, after snapping a 15-quarter profit streak in the second quarter.

Net profit attributable to shareholders totaled 1.461 billion euros ($1.58 billion) during the third quarter, compared with 1.047 billion euros anticipated in a poll of LSEG analysts.

Revenue came in at 7.5 billion euros, versus LSEG analysts’ estimates of 7.338 billion euros.

Other third quarter highlights include:

  • Profit before tax was 2.26 billion euros, up 31% compared to last year.
  • The provision for credit losses was 494 million euros, up from 245 million euros in the same quarter last year.
  • The CET 1 capital ratio, which is a measure of a bank’s solvency, was 13.8%, up from 13.5% in the second quarter.
  • Return on tangible equity was 10.2% (or 7.6% when adjusted for lender litigation provisions), up from 7.3% year over year.

Germany’s biggest lender posted a loss of 143 million euros in the second quarter, and announced at the time that it would not start its second share buyback program this year and take into account a provision for its long-running lawsuit over the Postbank acquisition. division. About 60% of plaintiffs in the litigation, based on allegations that Deutsche Bank underpaid for its purchases, settled with the German bank in August.

A partial release of 440 million euros in litigation provisions in the third quarter helped boost profits, Deutsche Bank said, and the lender has now directed it to apply for a share buyback – a move previously stalled by Postbank’s legal proceedings.

The European lender’s performance has been strengthened by a spate of share buybacks and dividends in recent years – and now faces pressure to generate earnings growth to match the profitability of its US peers in an environment of falling interest rates, after the European Central Bank. Banks began easing monetary policy over the summer.

“In retrospect, although the industry has reduced costs and kept credit quality high, the increase in yields since 2021 appears to be largely due to rising interest rates,” analysts at McKinsey warned in the consulting firm’s Global Banking Annual Review 2024, stating that, to maintain current ROTE (return on tangible equity) margins, banks need to cut costs about 2.5 times faster as revenues decline.

Deutsche Bank in February embarked on a cost-savings drive to reduce the lender’s headcount by 3,500 people by 2025 – a figure that includes 800 cuts announced in the previous year.

Market players are eagerly surveying the broader banking sector, after Deutsche Bank distanced itself from the prospect of a long-awaited merger with domestic rival Commerzbank, which now faces a potential acquisition by Italy’s Unicredit.

Other European banks will also report third-quarter earnings in the coming days, with Barclays due to release its report on Thursday and Swiss giant UBS due to report next week.

This latest news is being updated.

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