Deutsche Bank makes biggest annual profit in a decade

Frankfurt

DEUTSCHE Bank capped its most profitable year in a decade on the back of a dealmaking boom, strengthening chief executive Christian Sewing's hand as he prepares to lay out a new strategy and targets for the years ahead in March.

The surprise finale - analysts had been forecasting a loss for the fourth quarter - was the second straight annual profit following years of losses, but Deutsche was forced to shell out to keep its traders and dealmakers on board with compensation at its investment bank soaring 30 per cent in the quarter.

Nevertheless, Thursday's (Jan 27) figures are a milestone for Sewing, who was promoted to the top job in 2018 to turn Deutsche around after a series of embarrassing and costly regulatory failings.

"This year we can finally prove to the market that we are sustainably profitable," Sewing said in a message to employees.

The net profit attributable to shareholders was 145 million euros (S$219 million) in the 3 months ended Dec 31. That compares with a profit of 51 million euros a year earlier, and topped analyst expectations for a loss of around 130 million euros. Q4 was the sixth consecutive in the black, the bank's longest winning streak since 2012. For the year, Deutsche made a profit of 1.94 billion euros, up sharply from 113 million euros a year earlier.

Sewing confirmed the bank was on track to achieve a key profitability target in 2022, a return on tangible equity of 8 per cent that many analysts have forecast the bank will miss.

Analysts at Citigroup, which has a "sell" rating on Deutsche, said the bank's targets are "overly optimistic" and that it didn't see anything in Q4 to change its view.

Despite the annual profit, the bank has still lost more than 10 billion euros over the past decade.

Analysts expect Deutsche to deliver profits in 2022 and 2023, consensus forecasts of their estimates show.

Once Deutsche's sore spot, the investment bank has become an important revenue generator, benefiting from a pandemic-induced trading boom and a wave of dealmaking that has lifted banks across Wall Street.

Revenue at the unit rose 1 per cent to 1.913 billion euros in Q4 from a year earlier.

The investment bank's advisory business stood out amid a dealmaking boom, with revenue surging 156 per cent.

Revenue for fixed-income and currency trading, one of the bank's largest divisions, fell 14 per cent from a strong period a year earlier as markets calmed from their pandemic trading frenzy.

Some of the big US banks' Q4 results have disappointed investors partly because of ballooning expenses, hurting profit growth.

The 30 per cent increase in compensation and benefits at Deutsche's investment banking unit from a year earlier was greater than the average 10 per cent gain for the bank as a whole, a sign that it faces pressure to retain talent as the industry booms.

Sewing in 2019 announced 18,000 job cuts globally and the closure of some business lines in a major revamp to return to profit.

"Our plans were met with scepticism," Sewing reminded employees in the letter. "Few observers were confident that we would be able to achieve such ambitious objectives within three and a half years." He added: "Today we are proving that we keep our promises." REUTERS