Deutsche Bank will extend profit succession in the second quarter, but warns about the economy

Frankfurt — Deutsche Bank announced Wednesday that investment bank earnings increased, resulting in a 51% higher-than-expected increase in second-quarter profits, but lenders were not optimistic about the full-year sector outlook and about the economic outlook. I warned you.

Germany’s largest lenders have also lowered their full-year cost targets and become more cautious about their potential to reach key profit targets due to inflation and the impending energy crisis.

The result is in the midst of a week’s earnings report by major lenders across Europe, with investors showing signs of a downturn, rising interest rates and the Ukrainian war focusing on their businesses and outlook. I am monitoring.

Deutsche Bank is at the heart of a geopolitical storm, as Germany is particularly dependent on Russia’s energy and its economy is hit hard by supply shortages.

Net income attributable to shareholders for the quarter was € 1.046 billion ($ 1.06 billion). This is better than analysts expect for a profit of around € 788 million, compared to a profit of € 692 million in the previous year.

This was the eighth consecutive quarter of profit, a significant succession after years of loss.

This year is crucial as Germany’s largest lender and chief executive officer, Christian Sewing, seeks to reach the goals set in the costly overhaul of banks launched in 2019.

Sewing wrote to the staff that he should be proud of the results, but in the memo it sounded dark about the short-term economic outlook.

“The next few months will continue to be challenging. There is reason to believe that things will be even more difficult financially,” he wrote.

Banks are no longer aiming to reduce their cost targets to a cost-to-revenue ratio of 70% this year due to inflation, bank taxes, and other costs associated with the war in Ukraine. Today, this ratio is expected to be as high as in the mid-1970s.

Investors have long questioned whether banks will reach their most important goal of the year, the return on tangible assets of 8%. Chief Financial Officer James von Moltke said the risks facing Germany from being cut off from Russian gas.

Banks stuck to overall earnings guidance, but weren’t optimistic, downgrading investment banking outlooks and “essentially flat” compared to previous expectations that this year’s earnings would be “slightly higher.” I expect it to be.

Deutsche, like its US competitors, was hit by a decline in transactions amid the uncertainty caused by the war, although transactions stagnated due to volatile markets.

Overall investment banking revenues increased 11% in the quarter, while investment banking origination and advisory revenues declined 63% in the quarter.

Revenues in fixed income and currency transactions, one of the largest divisions of banks, increased by 32%.

Germany, like its US competitors, has hit the leveraged drone book as Russia’s invasion of Ukraine has hurt its trading outlook amid rising interest rates and extreme market volatility.

Deutsche lost € 150 million in write-downs this quarter.

Leveraged drones are usually made by companies with high levels of debt, and widening credit spreads means a bank’s market value loss.

On the bright side, corporate bank earnings increased 26%, supported by rising interest rates.

($ 1 = 0.9854 euros)

Tom Sims and Malta Oros