Deutsche Bank slips as quarterly income tumbles 65%

Deutsche Bank insisted on Wednesday it was on track to return to profit, despite posting a steep slide in third-quarter income and admitting that full-year revenues would fail to match 2017's.

Net profits at the German bank for the three months to 30 September were €506m, against €933m a year ago. Net income fell 65% to €229m, while net revenues were down 9% at €6.2bn, slightly below forecasts.

Deutsche said the fall in revenues partly reflected “the non-recurrence of certain specific items in the prior quarter, as well as lower volatility and reduced client volumes in the corporate and investment bank”.

In the first nine months of 2018, revenues fell 5% year-on-year to €19.7bn while pre-tax profits were €1bn lower at €1.6bn. Net income in the nine months fell from €1.7bn to €750m.

Germany’s largest lender has endured a torrid period as it strives to return to profitability. It has failed a stress test, reported three consecutive years of losses and suffered ratings downgrades. This year alone the shares have fallen 43%.

The stock was off 4% at €8.96 by mid-morning on Wednesday.

But new chief executive Christian Sewing, who took over the role in April, said: “With profit before tax of €506m, this result is another milestone on our way to becoming a sustainably profitable bank. We have our costs under control and sufficient capital to grow. We are on track to be profitable in 2018, the first time since 2014.”

Adjusted costs were down 1% year-on-year to €5.5bn, as reductions in professional services and other external spending offset ongoing investments.

The common equity tier 1 (CET 1) ratio improved, rising from 13.7% to 14%, ahead of many analysts’ expectations.

Michael Hewson, chief market analyst at CMC Markets, called the results “as disappointing as they were expected to be”.

He continued: “Net profits did come in above expectations, at €229m, however the bar was very low at €149m – which goes to show if you set the bar low enough, it becomes easier to get over it.

“The bank said it was cutting its full-year revenue outlook with the investment bank revenues down 15% from a year ago, anchoring it firmly at the bottom of the pile this earnings season.

“The downgrade appears to be a party as a result of ongoing restructuring costs, however it is becoming increasingly clear that investment banking remains a problem are. This is a problem, particularly since its peers are well ahead of it in terms of refining their business models and as such will continue to rise serious questions over the bank’s ability to recover its mojo in this key area.”

RBC Capital, which has an ‘underperform’ rating on the stock, said the results “showed the challenges facing Deutsche to grow revenues while keeping costs under control.

“Headwinds persist in our view, and Deutsche expects equity trading commissions to remain low in the fourth quarter. While the CET 1 ratio was above estimates, it points to a number of headwinds into the year end and at the beginning of 2019.”