Trading helps lift Deutsche Bank to highest quarterly profit in 11 years

Trading and investment banking helped lift Deutsche Bank to its highest quarterly profits in 11 years in the first three months of 2024, as global dealmaking started to pick up after a two-year long slump.

Germany’s largest lender said on Thursday that first-quarter net income increased 10 per cent from a year earlier to €1.45bn, slightly above analysts’ expectations. The profits increase reflected a similar trend at its larger Wall Street rivals.

Revenues at its investment bank rose 13 per cent to €3bn, driven by a 7 per cent increase in fixed-income trading and a 54 per cent jump in origination and advisory. However, the lender’s private and corporate banks both suffered falling revenues.

Chief executive Christian Sewing said Deutsche was on track to deliver ambitious 2025 targets for revenue growth, cost cuts and return on equity “on all dimensions”.

Nevertheless, Citigroup analyst Andrew Coombs wrote in a note to clients that while the results were “solid”, investors “may be cautious about extrapolating an investment bank-led beat” due to the fickle nature of the unit.

Costs fell 6 per cent in the quarter to €5bn, pushing its cost-income ratio to its lowest level in more than a decade. The bank earmarked €439mn for bad loans in the quarter, a decrease from the €488mn it provisioned in the final quarter of last year.

Deutsche shares fell 0.3 per cent to €15.35 in early trading on Thursday. The stock has risen more than 60 per cent over the past year but is still 90 per cent below the bank’s peak before the 2008 financial crisis.

“We do think we passed a high point in this cycle,” said Deutsche’s chief financial officer James von Moltke, referring to new loan provisions, adding that the crisis in US commercial real estate seemed to be “on a declining trend”.

Deutsche disclosed that last year’s botched Postbank IT migration had led to a €40mn hit from loans turning sour on top of €70mn in additional operative costs. The bank faced the wrath of thousands of customers and Germany’s financial watchdog BaFin as clients of its domestic retail division were locked out of their accounts for weeks, causing helplines to be overwhelmed and some internal operations to grind to a halt.

With retail staffing temporarily reshuffled to sort out the issues, this led to a “disruption to collections activity” in retail lending, said von Moltke. As a result, some clients fell “behind in their payments more than would have been the case” under normal circumstances, he said.

Deutsche is bracing for Postbank-related loan losses of €40mn and warned that some of the hit “may be permanent” as the impaired loans may not be recovered. Von Moltke said more retail loans would turn sour in the second quarter due to the Postbank woes.

By the end of March, the bank had fixed all of the Postbank issues that were directly affecting customers. However, von Moltke flagged that there were “some remaining non-client items that we’re cleaning up in Q2”.

Return on tangible equity, an important measure of bank profitability, stood at 8.7 per cent, higher than a year before but below Deutsche’s medium-term target of more than 10 per cent.

The lender’s common equity tier 1 ratio — a leading benchmark for its balance sheet strength — was 13.4 per cent, 0.3 percentage points lower than at the end of 2023 but well above the bank’s minimum target.

Its asset management unit, DWS Group, which is separately listed on the Frankfurt stock exchange, reported inflows that drove assets under management to a record high of €941bn as investors flocked to low-margin passively managed funds.