Deutsche Bank Swings Back Into Profit

Tom Burroughes

29 July 2020

today reported a pre-tax profit of €158 million ($185.6 million) for the second quarter of 2020, swinging back into profit after suffering a comparable loss of €946 million a year earlier. The bank said restructuring efforts were starting to clearly bear fruit.

The headline result was helped by a 23 per cent drop in noninterest costs from a year ago, to €5.4 billion, Germany’s largest bank said today.

The Frankfurt-listed bank has restructured part of its business lines planning to slash costs, while adding to parts of its business where it can build revenue. Over recent months Deutsche completed the legal entity merger of its German private bank and created the international private banking arm by melding some business units together.

“In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets. This enabled us to more than offset higher provision for credit losses and remain profitable while supporting clients through difficult conditions. Our strong capital position not only demonstrates our resilience, but also gives us scope for growth,” Christian Sewing, group chief executive, said.

Deutsche said that its core bank revenue growth, combined with continued progress on cost cuts, was sufficient to offset a rise in provision for credit losses to €761 million in the quarter, in line with management expectations and driven primarily by the impact of the COVID-19 pandemic.

The Common Equity Tier 1 capital ratio – a standard international measure of buffer capital - increased to 13.3 per cent in the quarter, 283 basis points above regulatory requirements.

Private banking results
Private bank net revenues were €2.0 billion, down by 5 per cent year-on-year. The bank said this decline reflected certain items related to the execution of strategic objectives. Revenues were also hit by COVID-19 and ongoing deposit margin compression which offset the positive impact of continued growth in volumes.

Revenues in the Private Bank Germany business stood at €1.2 billion, slipping by 5 per cent, in part caused by effects from the merger of the German legal entity in recent months. Revenues in the private and international commercial business fell by 12 per cent to €324 million, affected by the pandemic in Italy and Spain.

Wealth management revenues declined by 1 per cent to €424 million, with business growth largely offsetting headwinds from COVID-19 and low interest rates.

As economies re-opened after the initial impact of COVID-19, business volumes in some areas recovered. The Private Bank made net new client loans of €3 billion and attracted net inflows from investment products of €5 billion, versus €1 billion in the prior year quarter.

Asset management net revenues dropped by 8 per cent to €549 million, primarily due to the non-recurrence of periodic performance fees relating to an infrastructure fund in the prior year quarter. Assets under management rose by €45 billion to €745 billion in the quarter.