Deutsche Bank reports big jump in profit despite slump in dealmaking

FRANKFURT  – Deutsche Bank on Wednesday posted a better-than-expected 475 percent jump in third-quarter profit as investment banking revenues rose thanks to a trading boom and despite a slump in dealmaking.

It was the ninth consecutive quarter of profit, a considerable streak after years of losses and comes as the German and European economies face major headwinds. The bank warned of an “increasingly challenging” environment and “intensified” cost pressures.

This year is important for Germany’s largest lender and chief executive Christian Sewing in their aim to deliver on targets set out in a costly overhaul of the bank launched in 2019.

The results come amid a week of earnings reports by major lenders across Europe, where investors are watching for signs that a weaker economy will hurt business.

Net profit attributable to shareholders was 1.115 billion euros ($1.11 billion) in the quarter. That compares with profit of 194 million euros a year earlier, and it is better than analyst expectations for profit of about 835 million euros.

“We have significantly improved Deutsche Bank’s earnings power and we are well on track to meet our 2022 goals,” Sewing said.

At the same time, Sewing will warn analysts in a call later on Wednesday that “we continue to operate in a difficult and uncertain environment”, according to a transcript of his remarks.

The bank set aside 350 million euros in provisions for possible souring loans, a jump from 117 million euros a year ago.

Revenues rose at the bank’s major divisions, and Deutsche upgraded its outlook for the investment bank, saying it expected revenues in the division to be “slightly higher”, compared with previous expectations for “essentially flat”.

The figures are good news for the bank after a barrage of negative headlines in recent days.

Last week, German prosecutors searched its headquarters in connection with an investigation of the multibillion-euro tax fraud scheme, in a blow to a bank that has been trying to rebuild its reputation after compliance lapses.

This week, a German consumer group said it was suing Deutsche Bank’s asset management unit DWS for allegedly misrepresenting a fund’s green credentials in marketing materials. DWS rejects the allegations made by the consumer group.

Deutsche is also trimming staff at its investment bank, people with knowledge of the matter have told Reuters, as a pullback in financing deals compels lenders to limit costs.

Sewing, in a letter to employees on Wednesday, said “it is also essential that we continue to pay close attention to costs.”

Deutsche’s update came after some U.S. rivals reported mixed results on Wall Street, where profits slid as investment banking was hit hard, and executives braced for a weaker economy.

Deutsche – like its Wall Street competitors – was hurt by declines in dealmaking, although trading held up because of volatile markets.

Overall investment banking revenues were up 6 percent in the quarter, better than the 1.4 percent rise expected by analysts.

Revenue from the investment bank’s origination and advisory business declined 85 percent in the quarter, compared with expectations for a 61 percent drop.

Revenue for fixed-income and currency trading, one of the bank’s largest divisions, rose 38 percent, better than expectations for a 26 percent rise.

The investment bank in recent years recovered from being its problem child to its strongest revenue generator thanks to a coronavirus pandemic trading boom and the dealmaking frenzy.

Among Deutsche’s other major divisions, corporate bank revenues rose 25 percent, while private bank revenues were up 13 percent.