Deutsche Bank posts earnings beat as restructuring continues amid the pandemic
- Deustche Bank allocated credit loss provisions of 761 million euros and said it had increased its investment bank provisions significantly to reflect the expected impact of the coronavirus pandemic.
- Deutsche now anticipates that full-year revenues will be "essentially flat," offering slightly more optimistic guidance than previous projections.
Deutsche Bank on Wednesday reported a net loss attributable to shareholders of 77 million euros ($90.3 million) for the second quarter of 2020, beating analyst expectations.
This marks a stark improvement from the bank's 3.2 billion euro loss for the same period last year in the throes of a mass restructure, and outstrips its own consensus estimates of a 133 million euro net loss. Analysts polled by Reuters had projected a net loss of 182.9 million euros.
The German lender allocated credit loss provisions of 761 million euros, up from 506 million in the first quarter, and said it had increased its investment bank provisions significantly to reflect the expected impact of the coronavirus pandemic. This figure re-affirmed the bank's full-year guidance of 35-45 basis points of loans.
Here are some other highlights for the quarter:
- Group net revenues hit 6.3 billion euros, versus 6.2 billion euros a year ago.
- Common equity tier 1 capital ratio of 13.3%, versus 13.4% a year ago.
In its earnings report, the bank claimed its transformation efforts were fully on track, with non-interest expenses down 23% year-on-year to 5.4 billion euros.
Deutsche now anticipates that full-year revenues will be "essentially flat," offering slightly more optimistic guidance than previous projections.
"In a challenging environment we grew revenues and continued to reduce costs, and we're fully on track to meet all our targets," CEO Christian Sewing said in a statement.
"This enabled us to more than offset higher provision for credit losses and remain profitable while supporting clients through difficult conditions."
The bank's shares whipsawed Wednesday as investors reacted to the numbers, falling 1.8% by late morning trade.
Expect 'normalization' in investment bank sector
Revenues in the bank's fixed income and currencies (FIC) sales and trading division came in at 2.1 billion euros, up 39%, but this increase lagged the top five Wall Street investment banks as the sector broadly benefited from increased trading volumes in the second quarter.
However, CFO James von Moltke denied that this represents a loss of market share, telling CNBC on Wednesday that the bank's unique non-participation in commodities trading, smaller U.S. rates footprint and relatively larger financing business changes its assessment of relative performance.
"Overall rates, FX, emerging markets are up over 75% year-on-year and our rates business has now been up around 100%, so doubled, in each of the last three quarters. So we are seeing that participation in a strong revenue environment that you've seen with some of our peers," he told CNBC's Annette Weisbach.
"The other point I'd make is that for us, we are now 12 months into our repositioning or transformation of the company, so what is very encouraging for us is to see the franchise momentum, the client engagement and the capabilities that I think our clients are showing that they value in those businesses."
He highlighted that the broader investment bank outperformance, up 46% year-on-year to 2.7 billion euros, had largely financed the increased loan loss provisions, but that the bank expects a gradual normalization in the market for the second half.
"The very elevated levels of volatility, volumes, bid/offer spreads and also financing activity in the marketplace is not going to continue in the second half of the year as it was since March," von Moltke predicted.
"That said, I think that normalization will take some time, so we'd see market conditions continuing to be, if you like, better than perhaps was the case in the second half of last year."