Deutsche Bank has increased its forecast for revenue this year after it posted the strongest surge in fixed-income trading revenue in almost eight years, more than offsetting €761m of coronavirus-related loan loss provisions.
Germany’s largest lender on Wednesday said it was expecting that revenue this year would be “essentially flat”, compared with the previous guidance of a slight decrease. The loan loss provisions were almost five times higher than a year ago but better than the €818m expected by analysts.
Despite the better than expected results, executives cautioned the surge in trading revenue would likely subside in the second half of the year, and Deutsche’s net loss attributable to shareholders for the quarter nearly doubled to €77m.
Christian Sewing, chief executive, is in the second year of a radical restructuring plan that will cut about 18,000 jobs and reduce the size of its balance sheet by a fifth.
“Deutsche’s restructuring measures have made it more resilient to weather the disruptive effects of the coronavirus pandemic,” said Michael Rohr, an analyst at Moody’s rating agency.
James von Moltke, chief financial officer, told journalists on a call that the bank was planning to resume dividend payments for the coming fiscal year, a year earlier than currently expected by analysts. The German lender suspended payouts to shareholders last year when it announced its restructuring plan, which will cost €7.4bn by 2022.
Shares in Deutsche rose 0.6 per cent to €8.05 in morning trading on Wednesday and are up 9.5 per cent year-to-date. It has been one of Europe’s best-performing bank stocks in 2020.
Investment banking revenue shot up 46 per cent year on year to €2.7bn in the quarter, led by fixed-income trading. Group revenue rose 1 per cent to €6.3bn, €200m above expectations.
Despite Deutsche’s surge in trading revenue, analysts noted that it was lagging behind the performance of US rivals, which more than doubled their revenue in the second quarter.
Kian Abouhossein, an analyst with JPMorgan, said Deutsche’s results “could be viewed as just good enough”.
Andrew Coombs, an analyst at Citi, warned that the surge in trading activities was “unlikely to be sustainable”.
Deutsche said it was expecting a slowdown in trading activities during the rest of the year. “In the fixed-income business, we do see a return to more of a normal world [in the second half],” Ram Nayak, head of fixed income sales and trading, told the Financial Times.
Mark Fedorcik, head of Deutsche’s investment bank, said in an interview that the lender’s origination and advisory operations “gained or maintained market share across every product and region in the first half of 2020 versus the second half of last year” while cutting costs at the same time. “I don’t think any of our peers can say this,” he said.
Deutsche recorded a return on equity for the quarter of minus 0.6 per cent, a long way off its 2022 target of at least 8 per cent.
The lender also said the risk of its common equity tier one ratio — a key measure of balance sheet strength — temporarily falling below its internal target of 12.5 per cent in 2020 was “now significantly lower than was anticipated earlier in the second quarter 2020”.
As disclosed last week, Deutsche’s balance sheet in the second quarter was in a better position than analysts had expected as its CET1 ratio rose to 13.3 per cent, up from 12.8 per cent in the first quarter. One driver of the positive surprise was that corporate clients were repaying loans taken out to cope with the coronavirus crisis quicker than expected.