Deutsche Bank Records Impressive Q2 Earnings in Wake of Restructuring and COVID-19 Pandemic

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by Benjamin Godfrey · 3 min read
Deutsche Bank Records Impressive Q2 Earnings in Wake of Restructuring and COVID-19 Pandemic
Photo: Depositphotos

Deutsche Bank released its Q2 earnings today, the figures outperformed expectations. However, DBK stock is down today.

Deutsche Bank AG (ETR: DBK) on Wednesday released its Q2 2020 earnings posting impressive figures despite the COVID-19 economic downturn and the bank’s ongoing restructuring. As against the consensus estimate of 133 million euro net loss, DBK posted a net loss attributable to shareholders of 77 million euros ($90.3 million). Beating its own expectations, the bank has projected an “essentially flat” full-year revenue.

Christian Sewing, Deutsche Bank’s Chief Executive Officer, said:

“In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets. This enabled us to more than offset higher provision for credit losses and remain profitable while supporting clients through difficult conditions. Our strong capital position not only demonstrates our resilience but also gives us scope for growth.”

Deutsche Bank’s stock is currently bearish with a 4.49% at downtrend 7.64 euros (with a 0.36 euro loss), indicating that investors have not yet shown their impressions based on the firm’s performance, a position that may likely reverse in the coming days.

Deutsche Bank Performance in Summary

Undeterred by the COVID-19 pandemic as well as its internal restructuring efforts, DBK’s core bank revenue growth, combined with continued progress on cost reduction, was sufficient to offset a rise in provision for credit losses to 761 million euros in the quarter, in line with management expectations and driven primarily by the impact of the COVID-19 pandemic. The CET1 capital ratio increased to 13.3% in the quarter, 283 basis points above regulatory requirements.

The bank allocated credit loss provisions of 761 million euros, up from 506 million in the first quarter, and said it had increased its investment bank provisions significantly to reflect the expected impact of the coronavirus pandemic. Compared to a pre-tax loss of 946 million euros in Q2 2019, the bank recorded a pre-tax profit of 158 million euros in Q2 2020.

For H1 2020, the pre-tax profit was 364 million euros, as compared to a pre-tax loss of 654 million euros in the prior-year period. Net profit was 126 million euros, versus a net loss of 2.9 billion euros in the prior year which was primarily due to the aforementioned transformation-related effects.

Despite a 39% increase in the bank’s Fixed Income and Currencies (FIC) sales and trading division which came in at 2.1 billion euros, it appeared as though the bank lagged behind its peers in the FIC sector. Addressing this, the bank’s Chief Financial Officer (CFO) James von Moltke told CNBC that the firm is seeing FIC participation as much as its peers. He said:

“Overall rates, FX, emerging markets are up over 75% year-on-year and our rates business has now been up around 100%, so doubled, in each of the last three quarters. So we are seeing that participation in a strong revenue environment that you’ve seen with some of our peers.”

Following the group’s restructuring announced back in July 2019, Moltke expressed his optimism in the way investors are hopeful with respect to the firm’s new business model.

“The other point I’d make is that for us, we are now 12 months into our repositioning or transformation of the company, so what is very encouraging for us is to see the franchise momentum, the client engagement and the capabilities that I think our clients are showing that they value in those businesses,” he noted.

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