On Wednesday, Deutsche Bank announced a drop in revenue in its investment banking unit but nevertheless managed to outperform forecasts and earn its fifth consecutive quarter of profit.
Deutsche Bank’s net profit increased in the third quarter as fewer bad-loan charges helped offset a drop in investment banking revenue and higher costs for its turnaround.
Deutsche Bank reported a 2% increase in revenue to €6.04 billion, or $7 billion. The net profit for the three months ended September 30 increased by 6% to €329 million. Its net profit was better than the analyst consensus of €280 million. It’s the bank’s longest winning run since 2012.
Investment banking revenue fell 6% in the third quarter to €2.23 billion, as customer activity began to recover this year. However, the outcome was above analysts’ expectations, and the bank stated that it still expects the business to perform at last year’s record levels in 2021.
Revenue in its asset management sector increased 17 percent, while revenue in its corporate banking division remained flat and was slightly lower in its retail franchise.
The bread-and-butter business of Deutsche Bank, like that of other European banks, has been under strong pressure from a negative interest rate environment. Current inflation has put pressure on the European Central Bank to start raising interest rates sooner than expected in order to chill the economy, but the central bank has indicated that it is hesitant to do so because higher prices are only transitory.
Deutsche Bank has continued to alleviate some of the strain from low interest rates by charging deposit fees to business and individual customers who have large amounts of cash on deposit with the bank. It has also attempted to persuade people to transfer funds from their bank accounts to fee-based investing accounts.
Users have also fared better than predicted during the pandemic, keeping worsening loans and losses to a minimum for the lender. The bank set aside €117 million in the third quarter to protect bad debt, down from €273 million the previous year.
The ECB, which also supervises Europe’s major lenders, recently warned banks that they aren’t out of the woods yet, warning that when government backing is withdrawn, clients may face difficulties. However, with economies rebounding, few see a need to be concerned about large rises in bad debt.
The investment banking division was once again in the spotlight, with profit before tax falling from the previous year. According to Deutsche Bank, fixed income and forex trading suffered a 12% decline in net revenue year on year as markets displayed less volatility.
Controlling costs has proven to be more difficult for the bank.
Following unanticipated regulatory penalties that threw off its calculations, the bank discontinued a precise cost-cutting target for 2022 in the second quarter. To offset the increased costs, it stated that it would look for cost-cutting measures elsewhere.
The bank reported certain charges connected to shifting some of its systems to the cloud in the third quarter. As a result, costs increased by 4% to €5.37 billion. It had a cost-to-income ratio of 88.9 percent, compared to a target of 70 percent for 2022.