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Deutsche Bank reported a record third-quarter profit, as its trading and investment bank advisory revenue surged, but warned investors to brace for higher-than-expected loan losses for the second time in almost three months.
Chief financial officer James von Moltke told journalists on Wednesday that provisions for bad loans would rise to €1.8bn this year, from €1.5bn in 2023, sending shares down as much as 4 per cent in morning trading. The forecast was worse than flagged in July, when the bank last raised its outlook for provisions because of uncertain macroeconomic conditions.
Despite Wednesday’s slump, shares in Germany’s largest lender are still up about 30 per cent in the year to date, trading close to the highest level in seven years.
Deutsche Bank announced the highest third-quarter pre-tax profit in its 154-year history on Wednesday and confirmed it was on track to meet its guidance for full-year revenues of about €30bn.
Pre-tax profits in the third quarter surged 31 per cent year on year to €2.3bn. Investment bank revenue was up 11 per cent, driven by strong fixed-income trading operations and a 24 per cent jump in origination and advisory revenues.
“[We are] not happy that we haven’t achieved our guidance [on loan losses]but not concerned that there is a broader based deterioration of the portfolio in the underwriting,” von Moltke told reporters.
The higher loan losses were driven by the commercial real estate crisis, some “larger corporate defaults” and retail loans that turned sour over a botched IT integration.
Barclays analysts wrote in a note to clients that the “slight provision miss will catch attention” but that it only gives ground for “limited worries”. The issues will disappear in 2025, said von Moltke. “We absolutely today see the direction is as down and potentially significantly down looking to next year.”
Deutsche Bank said it was planning to resume share buybacks after the financial hit from a long-running shareholder litigation case proved smaller than feared. “We have now sought authorisation for further share repurchases,” said chief executive Christian Sewing in a statement on Wednesday morning. The bank did not disclose the potential size and timing.
The bank set aside €1.3bn earlier this year as it braced to lose a lawsuit over the price it paid to Postbank shareholders during its acquisition more than a decade ago and halted its buybacks.
After settling 60 per cent of the claims over the summer, the bank has lowered the provision for Postbank litigation charges by €440mn. It stressed that the lender remained confident it could “exceed” its €8bn capital redistribution goal between 2022 and 2026, 41 per cent of which has been delivered so far.
On Wednesday, Cologne’s higher regional court found against Deutsche Bank on the remaining 40 per cent of the claims, ruling that Postbank shareholders were entitled to €57.25 per share instead of €25 per share.
Deutsche Bank said in a statement that it was evaluating the verdict, adding that the additional financial hit was small even in a worst-case scenario. “Any additional financial impact would be limited to further interest [on the remaining claims] accruing currently approximately €2mn per month.”
Asked about speculation that Deutsche Bank may act as a potential white knight for Commerzbank, which may face a takeover bid from UniCredit, von Moltke told journalists that Deutsche Bank does not own any shares in its German rival and has not been “waiting by the phone” for a call from the German government or Commerzbank to weigh in.
In 2019, Berlin had encouraged Deutsche Bank to acquire Commerzbank, but Sewing walked back from a potential transaction. In recent weeks, Deutsche repeatedly signalled it was not interested. “Our commentary that we’ve been focused on executing our strategy . . . has been accurate throughout,” said von Moltke.
Deutsche’s post-tax return on average tangible shareholders’ equity in the third quarter rose 0.3 percentage points to 7.6 per cent, adjusted for the Postbank provision, still below its medium-term target of more than 10 per cent.
Excluding one-offs, Deutsche’s cost to income ratio stood at 69 per cent in the third quarter, against 72 per cent last year and compared with its 2025 goals of less than 62.5 per cent.
The bank’s common equity tier 1 ratio — a key benchmark for its balance sheet strength — was 13.8 per cent, up from 13.5 per cent in the previous quarter and well above target of more than 13 per cent.