Deutsche Bank raises revenue guidance after best year in decade

[FRANKFURT] Deutsche Bank gained ground on rivals in debt trading and merger advisory in the fourth quarter, leading the firm to say it will "significantly exceed" its revenue guidance for the coming year.

Germany's largest lender on Thursday (Jan 27) reported its most profitable year in a decade as its fixed-income traders held their own in the final months of the year and dealmakers posted their eighth quarter of growth. Revenue for the 3 months to December increased 8 per cent, beating estimates.

"We continued to at least hold, if not gain market share, against what for us was a relatively strong fourth quarter of 2020," chief financial officer James von Moltke said in a Bloomberg Television interview. "Going into 2022, we are actually seeing similar momentum."

The results give a boost to chief executive officer Christian Sewing as he prepares to unveil his next strategic update. After cutting thousands of jobs, he has relied on a rally in trading and dealmaking for much of the past 2 years to keep his plan on track as other businesses struggled to meet their targets. With inflation accelerating and competition for talent increasing, he will have to balance investments in growth while keeping a lid on costs to hit a key profitability target.

Sewing on Thursday reiterated his goal of reaching a return on tangible equity of 8 per cent this year, saying that the latest results provide a "strong step-off point" to hitting that target. Restoring sustainable profit has been the key pledge in the turnaround plan he unveiled in 2019, and which included thousands of job cuts and an exit from equities trading.

After recording its biggest profit since 2011, the bank is returning 700 million euros (S$1 billion) to investors through buybacks and dividends as it resumes capital distributions after a long hiatus. Sewing had scrapped payouts in previous years to cover the cost of an ambitious turnaround programme.

Revenue increased in all businesses in the fourth quarter, with asset management posting a 32 per cent increase, the corporate bank gaining 10 per cent and the private bank growing 4 per cent from a year earlier. The investment bank, which fuelled much of Deutsche Bank's recovery over the past years, gained 1 per cent.

That performance reflected a weaker trading environment, with income from buying and selling fixed income securities falling 14 per cent, slightly better than the average at the biggest US investment banks. Revenue from advising on deals and capital raising jumped 29 per cent, led by income from advisory that more than doubled.

To reward bankers and retain talent, Deutsche Bank is considering raising its bonus pool by 15 per cent, with staff in parts of the investment bank in line to receive substantially more, Bloomberg reported on Tuesday. Higher compensation and benefits already fuelled an increase in non-interest expenses last quarter. Sewing has also had to contend with unexpected investments in internal controls after criticism from regulators. That forced him last year to give up an absolute cost target in favor of a goal for a cost-to-income ratio of 70 per cent this year.

In the US, expenses soared across the industry in the final 3 months of the year, driven up by rising compensation costs. Most executives were optimistic, however, that rising interest rates would rekindle trading revenue this year and dealmaking would continue to soar. BLOOMBERG