Dealmaking helps Deutsche Bank make the most profits in 10 years

Frankfurt — Deutsche Bank has celebrated its most profitable year in 10 years, backed by a huge success in closing the deal. CEO Christian Sewing is tweaking new strategies to tackle costly talent competition.

Analysts forecast losses in the fourth quarter, with shares in Germany’s largest bank rising more than 5% after the 2021 surprise finale. It recorded profits for the second consecutive year, following losses over several years.

Deutsche Bank had to pay to keep traders and deal makers, and investment banking compensation surged 30% in the final quarter.

Bank executives say they are concerned about a “fierce war” over talent, and Deutsche Bank has come a long way to cut costs, even if investment bank earnings could decline this year. I’m out.

Nonetheless, this result represents a milestone for Sewing, who was promoted to a top job in 2018 to turn Germany around after a series of embarrassing and costly regulatory failures.

“You know how turbulent the years 2016-2018 have been for our banks. At that time, we seemed to be in a downward spiral,” Sewing told reporters Thursday. ..

“The downward spiral has turned into an upward spiral,” he said.

German shares, which have risen by more than 30% over the past year, announced that they had a net profit attributable to shareholders of € 145 million ($ 163 million) in the three months to December 31, 1213. It rose 5.1% at GMT.

This was in contrast to analysts’ expectations of a loss of around € 130 million compared to a profit of € 51 million in the previous year.

The fourth quarter was the sixth consecutive year in the black, the longest positive consecutive positive for banks since 2012.

Germany made a profit of € 1.94 billion in 2021 and lost more than € 10 billion in the last decade, up from € 113 million in the previous year.

Regulators continue to closely monitor banks, one of the most important banks in the global financial system.

Sewing confirmed that Deutsche Bank is on track to meet its key profitability goals in 2022. This is the 8% return on tangible shareholders that many analysts expect banks to miss.

Citigroup analysts, who value Deutsche Bank’s sales, said banks were “overly optimistic” and nothing changed this view in the fourth quarter.

Overrated JP Morgan said the results were mixed, but said “the future is moving in the right direction.”

Deutsche Bank is far from the goal of a 70% cost-to-revenue ratio by the end of 2022. It was 94.3% in the fourth quarter.

Overall, consensus forecasts show that investors expect Germany to make a profit in 2022 and 2023.

Sewing said the March strategy announcement was an evolution of the bank’s current stance focused on growth.

Since Deutsche Bank closed the merger negotiations with Commerzbank in 2019, questions have been raised about the possibility of partnering with another lender. However, Sewing said he was not thinking about a merger or acquisition in 2022.

Talent War

Once a thorny investment bank on the German side, it has become an important source of revenue, benefiting from the pandemic-induced trade boom and the wave of transactions that lifted banks across Wall Street.

Unit revenues increased 1% year-on-year to € 1,913 million in the fourth quarter.

The investment banking advisory business stands out, with earnings surged 156%.

Income in fixed income and currency trading, one of the largest divisions of banks, fell 14% from the strong period of the previous year as the market settled down from the pandemic frenzy. This was in line with the decline in US competitors.

Some of the fourth-quarter results of major US banks have disappointed investors, partly due to rising costs and hindering profit growth.

A 30% year-over-year increase in compensation and profits in Deutsche’s investment banking sector outpaced an average 10% increase across banks, facing pressure to retain talent when the industry is booming. It is a sign that it is.

These costs were € 319 million in the quarter, pushing down pre-tax profit in the sector, which was almost half the previous year.

Sewing is very concerned about the intensifying war over talent, but said he would like to make competitive payments.

“It’s also clear that we can’t avoid this competition, and we don’t want to, because we also want to have and maintain the best talent in banks,” he said.

Sewing in 2019 announced a reduction of 18,000 people worldwide and the closure of some business units to regain profits.

“Few observers were confident that they could achieve such an ambitious goal within three and a half years,” he said in a letter to the staff.

“Today we are proving to keep our promise,” he said.

Deutsche Bank said Wednesday that it would pay its first 2021 dividend since 2018 and buy back shares.

($ 1 = 0.8917 euros)

Tom Sims and Frank Sievert