Deutsche Bank is the largest German lender and it returned to profitability in its third quarter. The bank reported a profit of EUR1.461bn ($1.58bn) that was attributable directly to investors.
Analysts polled at LSEG had predicted EUR1.047 Billion.
A strong revenue stream and improved litigation provisions have helped the bank to turn around its Q3 results from an EUR143m loss during the prior quarter.
In the face of challenging market conditions, and falling interest rates in particular, Deutsche Bank’s results show its shift to cost-savings measures and an increased focus on shareholder return.
Deutsche Bank Q3 revenue hits EUR7.5 billion
- Analysts had predicted that revenue would reach EUR7.338 Billion in the third quarter. However, it actually reached EUR7.5Billion.
- Profit before taxes jumped by 31% on an annual basis to EUR 2.26 billion.
- The provision for credit losses has increased from EUR245 to EUR494 millions, up from EUR245million a year earlier.
- The CET 1 Capital Ratio improved from Q2 to 13,8%.
- The return on tangible equity (ROTE), which measures the value of a company’s assets, has increased from 7.3% to 10.2%.
Cost-saving efforts key to Deutsche Bank’s Q3 recovery
The profitability of Deutsche Bank in the third quarter can be attributed partly to its cost-cutting programs.
By 2025, the bank plans to cut 3,500 jobs from its workforce. This includes 800 cuts that were announced in 2018.
Savings initiatives are aligned with industry trends as European banks adapt to the changing interest rate climate.
Analysts say that in order to keep competitive margins, it will be necessary to continue reducing costs.
Deutsche Bank’s profits were significantly boosted by the partial release of EUR 440 million from litigation provisions in Q3.
These provisions relate to an ongoing lawsuit over Postbank’s purchase by the bank.
In August, 60 % of the plaintiffs reached a settlement with Deutsche Bank, which allowed them to continue pursuing stalled plans for share repurchases.
The bank has been able to manage the impact on its finances of the ongoing litigation.
Deutsche Bank distances itself from Commerzbank merger talks
In the midst of speculation about mergers in Germany’s Banking Sector, Deutsche Bank is moving away from any potential merger with Commerzbank.
Now, the focus is on the possible purchase of Unicredit by Commerzbank.
Analysts believe that Deutsche Bank’s strategy is a sign of the bank’s intention to consolidate its own position.
This decision shows that the bank is focused on internal restructuring, rather than inorganic growth via domestic consolidation.
In recent years, European banks such as Deutsche Bank have relied on dividends and stock buybacks to increase shareholder value.
Banks are under pressure now to grow their earnings in a world of declining interest rates, as the European Central Bank has shifted to a more accommodative monetary policy.
McKinsey’s Global Banking Annual Review, 2024, warns that to maintain current ROTE levels European banks will need to reduce costs about 2.5 times more than the revenue decreases.
Deutsche Bank is under pressure to adjust quickly to the changing dynamics as it looks to grow.
What drove Deutsche Bank’s third-quarter surge? This post appeared first on The ICD
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