Deutsche Bank Keeps Shrinking as Investment Bank Earnings Slump

Deutsche Bank AG just keeps shrinking.
Europe’s largest investment bank on Thursday reported a 10 percent decline in second-quarter revenue to 6.62 billion euros ($7.78 billion). Analysts had expected 7.1 billion euros for the top line, according to six estimates compiled by Bloomberg. Income from fixed-income trading fell 12 percent and equities revenue declined 28 percent.
“Revenues were not as universally strong as we would have liked, in large measure because of muted client activity in many of the capital markets,” Chief Executive Officer John Cryan said in a statement. Deutsche Bank said it expects revenues of its operating businesses to decline this year as market volatility and client activity are likely to “remain muted.”
Cryan, who in March announced the bank’s third turnaround plan in as many years, is trying to restore growth by pivoting the investment bank to corporate clients and emphasizing Deutsche Bank’s German roots. The lender last year posted the weakest revenue since 2010 as clients fled amid concern the bank may struggle to pay misconduct fines. Cryan this year raised 8 billion euros to try and put those worries to rest.
“Now that its capital issues have been resolved Deutsche Bank’s key challenge is to regain ground on its U.S. peers within fixed income trading,” said Arjun Bowry, an analyst with Bloomberg Intelligence. “Wealth and asset management, where they seem to be getting some traction back, is also a focus.”

Trading Slumps

Earnings at the investment bank declined 16 percent from a year ago, driven by a 18 percent slump in trading revenue and a 12 percent drop in global transaction banking. Cryan merged advisory and trading into one division in the March reorganization as he seeks to win more business from corporate clients.
Net income of 447 million euros beat the 311 million-euro estimate of six analysts surveyed by Bloomberg. Estimates ranged from a loss of 185 million euros to a profit of 550 million euros.
Deutsche Bank shares have gained 7.8 percent this year, compared with a 12 percent gain in the Bloomberg Europe 500 Banks and Financial Services Index. The stock has rebounded about 76 percent from a record low in September, when speculation about its capital position peaked.

Cryan’s Plan

Cryan scaled back the debt trading business since taking over as co-CEO in 2015, and has made efforts to improve controls and compliance after losses and misconduct fines. But problems with the bank’s risk management practices resurfaced last month when its traders were on course to lose as much as $60 million in a wrong-way derivatives bet on inflation.
The bank is aiming to cut about 9,000 jobs over the coming years as part of an earlier restructuring plan, though it has recently started to fill some staffing holes, particularly in its corporate finance franchise and its wealth management unit.
The CEO in March also discarded previous plans to sell the bank’s retail subsidiary Postbank after failing to find a buyer. The unit is now being integrated, with the aim to create the biggest retail bank in the notoriously overbanked German retail market.

Legal Cases

Under Cryan, the bank ended major legal cases, including a $7.2 billion settlement in December with the U.S. Justice Department of a probe into the bank’s handling of toxic mortgage securities before 2008. This month, Deutsche Bank and JPMorgan Chase & Co. agreed to pay a combined $148 million to resolve claims that they conspired to manipulate the benchmark yen Libor rate.
Several other cases are still pending for the German lender, most importantly a U.S. probe into its role in helping clients move about $10 billion out of Russia in so-called mirror trades. The bank is also facing pressure in the U.S. to disclose details about more than $300 million in loans it made to President Donald Trump for real estate projects.
Deutsche Bank Keeps Shrinking as Investment Bank Earnings Slump Deutsche Bank Keeps Shrinking as Investment Bank Earnings Slump Reviewed by Alexander Von Stern on 23:36:00 Rating: 5