Deutsche Bank vows to defend fixed-income trading after cuts

Frankfurt

DEUTSCHE Bank AG vowed to maintain its position in fixed-income trading after recording its weakest second quarter in that business since the global financial crisis, as chief executive officer Christian Sewing accelerates the lender's turnaround effort.

Income from buying and selling fixed-income securities slumped 17 per cent from a year earlier to 1.37 billion euros (S$2.2 billion), the lowest figure for a second quarter since 2008, Germany's largest bank said on Wednesday. The five largest US investment banks saw total debt trading revenue rise by 6.7 per cent over the same period.

Mr Sewing, who assumed his post less than four months ago, is trying to reverse what the bank has called a "vicious circle" of declining revenue, sticky expenses and rising funding costs. Revenue stabilised in the quarter and adjusted costs fell slightly, with Mr Sewing pledging more discipline on expenses.

"Restructuring on track," wrote JPMorgan Chase & Co analyst Kian Abouhossein. But the bank is "not out of the woods yet on revenue".

Deutsche Bank rose 0.2 per cent at 9.15 am in Frankfurt trading. The shares, which hit a record low in June, have pared some losses since the company on July 16 reported preliminary results that were better than analysts had expected.

Mr Sewing is cutting at least 7,000 jobs and retrenching in investment banking areas such as prime finance, US rates, and corporate finance in the US and Asia. Some of the bank's top investors, speaking on condition of anonymity, have urged that the bank provide more details and said that more radical measures than what Mr Sewing has proposed may be needed.

"In the second quarter, we accelerated the reshaping of our bank significantly and proved the resilience of our global business," Mr Sewing said in a statement. "We're making important changes to our core businesses as promised, we're headed in the right direction on costs, and our balance sheet quality is strong."

Higher funding costs, cuts to the US rates business and exchange-rate swings will probably mean that revenue from fixed-income trading will be "slightly lower" this year. Still, the bank said that it is "confident of maintaining its position as the fourth-largest house globally in fixed income and currencies".

Despite the declines in trading, revenue at the securities unit, the biggest contributor overall to income, held up in the second quarter, falling just one per cent. That reflected higher income from the advisory business as well as several one-time effects. Global transaction banking increased 4 per cent, a sign that the business has turned a corner, Mr Sewing said.

"It is comforting that Deutsche Bank is on track but we believe improving returns from a low level will take time," said Anke Reingen, an analyst at RBC Capital Markets, in a note to investors. BLOOMBERG