Deutsche Bank signals optimism after weathering trading slowdown in Q3

Frankfurt

DEUTSCHE Bank AG said a recent pick-up in client trading should help lift its investment bank past last year's results after the firm weathered a slowdown in the key debt trading business slightly better than peers.

Germany's largest bank posted third-quarter revenue and net income that were just above what analysts had expected, as it set aside less money for bad loans. Fixed-income revenue slipped 12 per cent, less than forecast, as its traders held on to recent market share gains.

"Client engagement was high and increased as the quarter went on" in debt trading, chief financial officer James von Moltke said in an interview on Bloomberg TV. "So we're quite optimistic actually about our ability to carry some of that momentum forward."

Chief executive officer Christian Sewing has relied on a boom in fixed income trading for much of his turnaround so far, as negative interest rates continue to weigh on the lending units he initially put at the centre of his strategy. The bank's decision to get out of equities trading stung this quarter, as that business lifted rivals including UBS Group amid the fixed-income slump.

Sewing recently hired senior bankers and is adding new trading businesses to boost growth. Deutsche Bank on Wednesday (Oct 27) predicted a "slight improvement" in investment banking revenue this year, after previously guiding only for little change.

In the third quarter, income from buying and selling fixed-income securities fell 12 per cent from a year earlier, compared with an average drop of 13 per cent at the five biggest US investment banks. Earnings from advising on deals and capital raisings rose 22 per cent, compared with more than 50 per cent at the US banks. Sewing exited equities trading two years ago as part of his overhaul. Wall Street peers on average posted gains of 35 per cent in that business.

Deutsche Bank's fixed-income traders had outpaced Wall Street in the four previous quarters, suggesting the lender has been winning back market share after almost half a decade of steady declines. While those results were boosted by one-off gains such as successful bets by the distressed debt team, the third quarter results suggest it's consolidating its position.

In a presentation, Deutsche Bank said that revenue overall was "developing in line with or better than previous 2022 ambitions" and that it's "positioning for meaningful capital returns to shareholders starting in 2022". The lender set aside 641 million euros (S$1 billion) in the first three quarters of 2021 for dividends to be paid next year.

But the corporate banking unit and the retail division both once again failed to grow as negative interest rates continued to weigh on the businesses that Sewing once put at the heart of his strategy.

The CEO said in a memo to staff that "the foundation for future growth" had been laid in the corporate bank while also pointing to increasing profitability in the retail division. BLOOMBERG