Deutsche Bank lifts outlook after Q3 results beat estimates

Frankfurt

DEUTSCHE Bank AG raised the outlook for the investment bank after its debt traders snapped a long streak of losing market share with a Wall Street-beating result that more than offset weakness in the corporate bank.

Income from trading fixed-income securities and currencies at Germany's largest lender rose 47 per cent in the third quarter, compared with an average of 25 per cent for the five biggest US investment banks. Among the large investment banks that have reported earnings so far, only Goldman Sachs Group Inc did better with a 49 per cent increase. Overall, results topped estimates with the bank posting an unexpected profit of 182 million euros (S$291 million), compared with a loss analysts had predicted.

Deutsche Bank said the securities unit continues to perform well so that revenue there will be "significantly higher" for the full year, Deutsche Bank said. It had previously guided only for higher revenue at the business.

The trading unit, still one of the biggest in Europe for fixed income, has provided an unexpected boost as it benefited from a market rally that started late last year and accelerated with the coronavirus pandemic. While higher trading revenue helped offset rising provisions for bad loans - including at the corporate bank that chief executive officer Christian Sewing wants to strengthen - the market bonanza is showing signs of petering out while surging infections fan fears of new lockdowns.

"We not only demonstrated continued cost discipline, but also our ability to gain market share," Mr Sewing said in a statement on Wednesday. The bank said it's on track to meet all financial and strategic targets.

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Deutsche Bank set aside 273 million euros for bad loans in the quarter, slightly less than a previous guidance of 300 million euros. The lender in previous quarters provisioned less than many competitors for the pandemic, citing the quality of its loan book and its exposure to Germany, which has released enormous government aid to support its economy.

The trading performance compares with gains of about 23 per cent at the fixed-income desks at Barclays Plc and 41 per cent at UBS Group AG. So far this year, growth at Deutsche Bank had trailed the competition even as it benefited from the rally, though the third quarter snapped that streak. Mr Sewing, who also heads the investment bank, has said the division's growth is only partly driven by the buoyant market and partly the result of changes made under his leadership.

Still, the gains for now have alleviated concerns the business may be too damaged after years of piecemeal cuts under Mr Sewing's predecessors. The bank last year unveiled its biggest restructuring in two decades, exiting equities trading and trimming the larger fixed-income operation. Mr Sewing, a former corporate banker, had initially planned more aggressive cuts to debt trading but reversed course when it became clear that negative interest rates would weigh on the bank's other businesses for longer.

Shares of Deutsche Bank have rallied 14 per cent this year, the best performance among European lenders. That also reflects the fact that other lenders were hit hard by a de-facto ban in Europe on dividend payments, whereas Deutsche Bank hadn't planned a payout while it's going through the restructuring. BLOOMBERG