Deutsche Bank pledges to raise investor returns on promising results

Deutsche Bank said it would have capacity to increase dividends and share buybacks over the next two years as it reported better than expected third-quarter results.

Pre-tax profit at Germany’s largest lender rose 7 per cent year on year to €1.7bn, beating analysts’ forecasts of €1.6bn. It was buoyed by rising interest rates, which helped its corporate and private banking divisions, while investment bank revenues fell 4 per cent.

Net profit attributable to shareholders dropped 8 per cent to €1bn because of a higher tax rate, but still exceeded expectations.

Deutsche said it was on track for its highest annual revenue in seven years, at the upper end of its guidance at about €29bn. Its shares rose more than 5 per cent in early trading on Wednesday.

The better than expected performance offers some relief after a botched IT migration at the bank’s German retail business caused problems for customers of its subsidiary Postbank.

Deutsche was publicly rebuked by the country’s financial watchdog BaFin, which has sent a special supervisor to monitor the problem.

In a note to staff on Wednesday, chief executive Christian Sewing wrote that the bank was “on the right track” and had cleared “two-thirds” of the backlog caused by the project. He added that Deutsche was aiming to return to normal service levels by the end of the year.

Sewing stressed that Deutsche’s retail bank recorded “billions of euros in inflows” of client funds in the third quarter. “This shows that our clients continue to rely on us,” he said.

The investment bank’s bond trading unit, which has been a key source of profit over the past few years, fell behind US rivals in the third quarter, reporting a 12 per cent drop in revenue to €1.9bn, compared with an average 1.1 per cent gain at US peers. The drop was partly offset by a sharp rise in origination and advisory revenues, which more than tripled to €323mn.

Deutsche’s asset management division DWS recorded its third consecutive quarter of net inflows as investors poured €1.6bn mainly into its exchange traded funds and ESG products, increasing assets under management by €1bn to €860bn.

DWS’s chief executive Stefan Hoops told analysts on a call on Wednesday that the business would face up to €100mn of extra costs next year because of delays to an IT migration and that the overall project may be up to 50 per cent more expensive than forecast. “The transformation benefits will likely arrive later,” he added.

Deutsche’s common equity tier one ratio — a key measure of the strength of its balance sheet — rose to 13.9 per cent, well above an internal minimum threshold of 13 per cent.

The bank said its strong balance sheet created “the potential to free up additional capital of around €3bn through 2025”, compared with its previous promise to pay out €8bn in dividends and buybacks between 2022 and 2025.

Chief financial officer James von Moltke said during a call on Wednesday that the bank had not yet decided how much of the additional €3bn would be paid out to investors.

“It’s going to take some time to see what the new capital plan will look like,” he said, adding that the 2024 share buyback was likely to be higher than previously planned. Deutsche has already committed to a €450mn share buyback this year and promised to raise that amount by 50 per cent each year until 2025.

JPMorgan analyst Kian Abouhossein wrote in a note to clients that Deutsche had sent a “strong message on capital position and potential capital return”.