A branch of Deutsche Bank is seen in the financial district of Frankfurt, Germany, Friday, May 6, 2022.
Alex Krause | Bloomberg | Getty Images
Deutsche Bank First-quarter net profit of 1.158 billion euros ($1.28 billion) was reported on Thursday, shrugging off a turbulent month gripped by fears of a global banking crisis.
Net profit attributable to shareholders was well above the consensus estimate of 864.54 million euros in a Reuters poll of analysts and up from 1.06 billion euros in the first quarter of 2022.
It marked the German lender’s 11th straight quarterly profit after completing a sweeping restructuring program that began in 2019 to cut costs and boost profitability.
Chief executive Christian Sewing said: “Our first quarter results demonstrate the relevance of our Global Hausbank strategy to our customers and underscore that we are on track to meet or exceed our 2025 targets.”
“We aim to accelerate the execution of our strategy through a series of measures announced today: increasing our ambition for operating efficiency, improving capital efficiency to drive returns and support shareholder distribution, and seizing opportunities to exceed our revenue growth targets.”
Still, Thursday’s report showed deposits fell to 592 billion euros in the quarter from 621.5 billion at the end of 2022. The bank said the decline was due to “intensified price competition, a normalization of the high levels seen in the first two quarters and end-of-quarter market volatility.
Deutsche Bank Corporate Bank’s net revenue in the quarter was 2 billion euros, a year-on-year increase of 35%, the highest quarterly figure since the start of the transformation plan. Net interest income was the main driver, up 71%.
However, the bank also said it would lay off non-client-facing staff and reported a larger-than-expected 19% year-over-year decline in investment banking revenue.
“The bank is currently implementing additional efficiency measures in the front office and infrastructure,” it said in the report.
“These measures include strict restrictions on hiring in non-client-facing areas, centralized management reductions, streamlining of the mortgage lending platform, and further downsizing of the Russian Technology Center.”
Other data highlights for the quarter:
- Revenue was 7.7 billion euros, up from 7.33 billion euros in the first quarter of 2022, although the bank said the quarter saw “challenging financial market conditions”.
- The provision for credit losses was EUR 372 million, compared with EUR 292 million a year ago.
- The CET 1 capital ratio, which measures banks’ solvency, was at 13.6 percent, up from 12.8 percent a year ago and 13.4 percent in the previous quarter.
Net profit of 1.8 billion euros in the final quarter of 2022 was well above expectations, bringing the bank’s annual net income to 5 billion euros, beating profit expectations. However, uncertainty over the macroeconomic outlook and weaker-than-expected earnings from the investment bank kept traders cautious on the company’s stock.
The market turmoil caused by the collapse of Silicon Valley Bank in early March eventually led to the emergency rescue of Silicon Valley Bank credit suisse go through Swiss bankdespite its strong financial position, it briefly swallowed Deutsche Bank late last month.
Its Frankfurt-listed shares tumbled while credit default swaps – a form of insurance for corporate bondholders against default – soared, prompting German Chancellor Olaf Schulz to publicly allay market concerns.
‘Natural beneficiary’ of Credit Suisse collapse
Chief Financial Officer James von Moltke told CNBC on Thursday that March’s banking turmoil allowed the bank to prove its mettle to a skeptical market.
“Certainly, the market conditions in March were interesting. We took the test and I think the silver lining of the test is that we passed the test and I think we passed it with flying colors,” he said.
“The market has been looking for unexpected banking holes in regional U.S. banks. It’s looking for securities losses, interest rate mismanagement issues, exposure to commercial real estate and many other types of characteristics.”
He suggested that, in reviewing Deutsche Bank, market participants saw a strong and profitable business model, a stable balance sheet and deposit base, a “very modest” and “well underwritten” commercial real estate book and “no short-term funding need”.
“So, from all perspectives, when the market takes a hard look at us, what they see is a stable, well-run, well-managed bank,” von Moltke told CNBC’s Annette Weisbach ).
In light of UBS’ bailout of Credit Suisse, von Moltke also said Deutsche Bank would be a “natural beneficiary” of the collapse of the stricken Swiss lender.
“We admire the management team at UBS and we think that over time this competitor will become stronger, but again, banking relationships are now concentrated on one provider serving many of their clients, which is something you would expect Seeing them diversify things,” he said.
“We think we’re a natural destination for some of their customers, some of their people, some of their businesses, and I think we’re well positioned to capitalize on that opportunity.”