Deutsche Bank shares surge 7% after net profit beats expectations

Credit environment worse than normal but not in period of stress, Deutsche Bank CFO says

Deutsche Bank shares popped on Wednesday, after the lender slightly beat expectations with its thirteenth straight profitable quarter and said it would increase and accelerate shareholder pay-outs.

Third-quarter net profit was 1.031 billion euros ($1.06 billion), above an analyst consensus of quarterly net profit attributable to shareholders of 997 million euros, according to LSEG data.

Shares were 7% higher at 8:33 a.m. London time.

The bank’s third-quarter net profit was down 8% on the previous year and up 35% on the quarter, amid ongoing struggles in the lender’s investment unit.

For the same period in 2022, the German lender recorded a net profit of 1.115 billion euros on the back of higher interest rates and increased market volatility that boosted its fixed income and currencies trading business.

The bank said it was expecting revenues of around 29 billion euros for the full year, at the top end of prior estimates.

It also said it had scope to release up to an additional 3 billion euros in capital and would increase and accelerate shareholder distributions.

It delivered a strong performance in its corporate banking business — which benefits from the higher interest rate environment — where revenues rose 21% year-on-year to 1.89 billion euros.

However, it continued to see a slowdown in its investment arm, where net revenues fell 4% year-on-year to 2.27 billion euros and are down 12% in the first nine months of the year to 7.3 billion.

Deutsche Bank CFO James von Moltke told CNBC’s Silvia Amaro that the investment banking unit’s performance is “pretty much in line with the market” on an underlying basis.

“What’s going on is the normalization of fixed income and currency revenues that we called for, especially in the macro businesses, so rates, foreign exchange and emerging markets, which benefited last year from the very high levels of volatility,” von Moltke said.

There has been a rotation of the bank’s activity focusing onto other products, notably credit and financing, which have seen strength, he said.

Other highlights for the quarter:

  • Total revenues stood at 7.13 billion euros, up from 6.92 billion in the third quarter of 2022.
  • The provision for credit losses was 200 million euros, compared to 350 million in the same quarter of last year.
  • Common equity tier one CET1 capital ratio, a measure of financial resilience, was 13.9% versus 13.8% at the end of the second quarter and 13.3% in the third quarter of 2022.
  • Return on tangible equity stood at 7.3%, up from 5.4% the previous quarter.

Analysts at UBS said Deutsche Bank had delivered a “major improvement in capital” and “robust operational performance,” flagging that pre-tax profit of 1.723 billion euros was 9% above consensus.

Numerous challenges remain for the bank, including a weakening European business environment, macro uncertainty and IT issues at two of its retail units.

Read More: Deutsche Bank shares surge 7% after net profit beats expectations

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