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Deutsche Bank has reported a record third-quarter profit, with its trading and investment bank advisory revenue surging. However, the bank warned investors to prepare for higher-than-expected loan losses for the second time in nearly three months.
Chief financial officer James von Moltke informed journalists on Wednesday that provisions for bad loans would increase to €1.8bn this year, up from €1.5bn in 2023, causing shares to drop by as much as 4 per cent in morning trading. This forecast was worse than what was previously indicated in July, when the bank last raised its outlook for provisions due to uncertain macroeconomic conditions.
Despite the decline on Wednesday, shares in Germany’s largest lender have risen by about 30 per cent so far this year, trading close to their highest level in seven years.
Deutsche Bank announced the highest third-quarter pre-tax profit in its 154-year history on Wednesday and confirmed that it was on track to meet its guidance for full-year revenues of about €30bn.
Pre-tax profits in the third quarter rose by 31 per cent year on year to €2.3bn. The increase in investment bank revenue by 11 per cent was driven by strong fixed-income trading operations and a 24 per cent jump in origination and advisory revenues.
“[We are] not happy that we haven’t achieved our guidance [on loan losses], but not concerned that there is a broader-based deterioration of the portfolio in the underwriting,” von Moltke told reporters.
The higher loan losses were primarily driven by the commercial real estate crisis, some “larger corporate defaults,” and retail loans that turned sour due to a botched IT integration.
Barclays analysts noted in a client note that the “slight provision miss will catch attention,” but it only gives rise to “limited worries.” Von Moltke stated that the headwinds will disappear in 2025. “We absolutely today see the direction as down and potentially significantly down looking to next year.”
Deutsche Bank aims to resume share buybacks after the financial impact from a long-running shareholder litigation case turned out to be smaller than feared. “We have now sought authorization for further share repurchases,” said chief executive Christian Sewing in a statement on Wednesday morning. The bank did not disclose the potential size and timing.
Earlier this year, Deutsche Bank set aside €1.3bn in anticipation of losing a lawsuit over the price it paid to Postbank shareholders during its acquisition more than a decade ago, leading to a pause in its buybacks.
After resolving 60 per cent of the claims over the summer, the bank reduced the provision for Postbank litigation charges by €440mn. It emphasized that the lender remained confident it could “exceed” its €8bn capital redistribution goal between 2022 and 2026, with 41 per cent of the goal already achieved.
Regarding speculation that Deutsche Bank may act as a potential white knight for Commerzbank, which is being targeted by UniCredit, von Moltke informed journalists that Deutsche Bank does not own any shares in its German rival and has not been “waiting by the phone” for a call from the German government or Commerzbank to intervene.
In 2019, Berlin had encouraged Deutsche Bank to acquire Commerzbank, but Sewing backed away from a potential transaction. In recent weeks, Deutsche has repeatedly indicated that it is not interested. “Our commentary that we’ve been focused on executing our strategy . . . has been accurate throughout,” von Moltke stated.
Deutsche’s post-tax return on average tangible shareholders’ equity in the third quarter increased by 0.3 percentage points to 7.6 per cent, adjusted for the Postbank provision, still below its medium target of more than 10 per cent.
Excluding one-offs, Deutsche’s cost-to-income ratio was 69 per cent in the third quarter, compared to 72 per cent last year, and against its 2025 goal of less than 62.5 per cent.
The bank’s common equity tier 1 ratio — a key benchmark for its balance sheet strength — was 13.8 per cent, up from 13.5 per cent in the previous quarter and well above the target of more than 13 per cent.