8th November 2019

Deutsche Bank still on track, says CEO, despite poor results

Deutsche Bank CEO Christian Sewing is adamant that the strategy to transform the bank by 2022 is on track, seemingly unfazed by the 14.8 per cent decline in Q3 net revenues, the poor performance of FIC trading, the EUR 832m net loss and the negative 7.3 per cent RoTE.

When Scope cut Deutsche Bank’s Issuer Rating from BBB+ to BBB in May, the rating release had noted “the road to successful business-model recalibration and a return to sustainable profitability is still steep and fraught with uncertainties”. While there were signs of progress in aspects of the Q3 2019 earnings, that comment remains highly relevant.

“The poor market response to the bank’s Q3 numbers may have been a knee-jerk over-reaction to numbers that had either been flagged by management or were skewed by costs related to the restructuring that should have been factored into expectations,” said Dierk Brandenburg, team leader for financial institutions at Scope Ratings.

“While it’s too early to declare victory, particularly amid a challenging set of macro factors – including negative bond yields and interest rates; slow growth and recession in Germany – the depiction by Deutsche Bank’s CEO of the bank’s status built off a series of positives.”

Trends in the Core Bank, performance of the Capital Release Unit, headcount, costs and capital are all running in line with or better than planned, Sewing said on the analyst call. The investment bank, which is doing a lot of the heavy lifting in the restructuring, came under particular scrutiny. Here, net revenues fell 5.4 per cent but Sewing believes this is satisfactory given the impact of transformation impacts on the division and is in line with internal targets.

A bright spot was the 20 per cent growth in Origination & Advisory revenues against a reportedly flat industry wallet (driven by advisory fees); FX was “resilient”, although EM rates trading made losses. “One area of concern was FIC sales and trading, where revenues fell 12.7 per cent YoY; a poor showing against DB’s principal US and European peers,” Mr Brandenburg said.

The IB cost-income ratio rose 8.2 percentage points YoY to 94.8 per cent and its post-tax return on average tangible shareholders’ equity was just 0.2 per cent, against just 2.6 per cent in the year-ago quarter.

But even in the face of the poor numbers, Mr Sewing found an encouraging underlying trend, pointing to IB revenues mainly being generated from businesses that were either stable or grew in Q3. And only 3 per cent of the 3,000-plus institutional clients with whom the bank did active business in equities reportedly stopped doing business with the bank in products it is keeping.