Deutsche Bank’s profit in the first quarter of 2021 hit a seven-year high at €1 billion, up from €66 million reported a year earlier. The bank’s profit before tax climbed from €206 million in the first quarter of 2020 to €1.6 billion this year. Total quarterly net revenues rose 14% year on year to reach €7.2 billion.
“Our first quarter is further evidence that Deutsche Bank is on the right path in all four core businesses, and is building sustainable profitability,” CEO Christian Sewing stated. “In addition to substantial revenue growth over an already strong prior-year quarter, we demonstrated cost and risk discipline. We achieved a post-tax return on tangible equity of above 7%, and returns in the Core Bank are already ahead of our ambition for next year. These results give us confidence that we’ll reach our 2022 targets,” he added.
Deutsche Bank scored high on its profits due to a boom in bonds trading, good returns from its investment assets, and escaping any fallout from the U.S. hedge fund Archegos Capital’s collapse.
Germany’s largest lender also lifted its full-year outlook for 2021, saying it expects revenue to be “essentially flat”, compared with previous guidance of a year-on-year drop. Shares in the lender were up more than 10 percent to €11.27 on Wednesday.
The bank’s investment banking division was the key driver for its almost stellar performance with a 32 percent year-on-year jump in revenue to €3.1bn, and the group’s asset management unit, where revenue increased 23 percent to €637m. The results beat analyst expectations by close to 60 percent.
Deutsche had a €3.4bn exposure to Archegos but the banks said it could avoid any losses. It had lent heavily to Archegos and accepted shares in the company as collateral, but it said it managed to sell the shares before the debacle unfolded. Other banks, including UBS, and Credit Suisse, collectively took a hit of nearly $10bn.
“In fact, we returned excess collateral to the client after the wind-down,” chief financial officer James von Moltke told journalists on a call, adding that the lender was “obviously pleased with the risk management outcome”.
Deutsche Banks disclosed that it would miss its 2021 cost-cutting target by €400m as it is committed to the bank bailout funds of the European Union to the tune of €70m. It will have to make the payout to Germany’s private banking deposit insurance scheme. The scheme, suffered a hit of more than €3bn from the collapse of Greensill Bank. Between 2022 and 2024, Deutsche expects further Greensill-related hits of about €60m per year.
The bank’s chief executive Christian Sewing embarked on an ambitious restructuring spree in mid-2019 after years of losses and boardroom strife.
It involved sizing down the bank, reducing its balance sheet, and cutting 18,000 jobs by 2022. Initially, the cutting down came with its own burden of €5.7bn in 2019, but the lender has now returned to profitability, having reported a net income of €113m last year.
Kian Abouhossein, an analyst with JPMorgan, said in a note said that Deutsche reported “the cleanest set of results of any global [investment bank] in our coverage so far,” adding that the lender’s “transformation [is] ahead of track”.
Deutsche’s private bank and corporate bank have reported falling revenue. The German bank also said it was confident that the burden on the private and corporate bank from low-interest rates will peter out this year and next.
“We have talked about how those businesses are still fighting through the headwinds of negative interest rates, but that we are seeing underlying growth in them more than offsetting, or offsetting at least, the interest rate headwinds,” the bank’s CFO James von Moltke told CNBC. Andrew Coombs, a Citi analyst, called the first-quarter numbers “a very good set of results”.
