Status: 07/27/2022 10:20 a.m.
Germany’s largest money house generated an astonishingly large surplus of over one billion euros in the last quarter. However, the bank continues to expect difficult months.
Germany’s biggest bank posted its eighth consecutive quarterly profit despite a difficult environment of fears of recession, inflation and the impending gas crisis. Compared to the previous year, Deutsche Bank increased its profit significantly by more than half to 1.05 billion euros. On average, analysts had only forecast a net profit of 788 million euros.
“Private customers and corporate banks are developing particularly well,” said Deutsche Bank boss Christian Sewing. “Thanks to our successful transformation, we are on track to be well diversified and sustainably profitable with our four strong business areas.” On the stock market, investors reacted cautiously to the numbers, with Deutsche Bank shares down as much as 1.0% in the morning.
Question marks behind annual objectives
For Deutsche Bank, this is the best half and second quarter since 2011. The bank intends to stick to its objective of achieving an after-tax return of 8% for the current year. However, it has become more difficult to achieve these goals.
“We now have more difficult months ahead of us,” Sewing wrote in an employee letter. “There is a lot to think that it will become even more difficult economically.” In the second quarter, the after-tax return was 7.9%, compared to 5.5% in the same period last year.
One of the biggest challenges is the increased risk of default: the bank has increased its provisions to 233 million euros. This is more than double that in the same quarter of the previous year, when provisions for risks still amounted to 75 million euros.
Risk to Russia reduced
For the year 2022, Deutsche Bank has confirmed the objective of achieving a profit of 26 to 27 billion euros. This applies even though the macroeconomic environment deteriorated in the second quarter and the bank expects a difficult second half, it said when releasing the figures.
Deutsche Bank has reduced its financial risk towards Russia by 42% to 0.6 billion euros. Inflation and exchange rate fluctuations increased adjusted costs by 2% to €4.7 billion.
Increase in the CET 1 capital ratio
The bank is therefore a little less optimistic about the evolution of the ratio between expenses and income. In the current year, this percentage will be in the low to mid-70s. Until now, the bank had promised a rate of 70%. In the second quarter, the ratio improved to 73%, after being 80% during the same period of the previous year.
In investment banking, profits were forecast to rise only 1% to 1.1 billion euros. The group’s total revenue increased by around 7% to 6.65 billion euros in the second quarter. The CET1 capital ratio rose to 13% from 12.8% during the quarter.
Banks down in profits
It was only on Tuesday that Deutsche Bank’s Swiss competitor UBS presented its figures and recorded the highest quarterly profit in ten years. In the United States, however, where the big banks opened their books earlier, the heavyweights of the financial sector were already announcing declines in profits. The largest bank in the United States, JPMorgan, announced a 28% drop in profits to $8.6 billion. At $3.1 billion, Wells Fargo earned nearly 50% less than the same period a year ago. And Citigroup’s profits fell 27% to $4.5 billion.