After serving much drama to its shareholders – and global markets – over the past couple of months, when its stock tumbled to all time lows following the news of the bank’s $14 billion DOJ settlement ask, Deutsche Bank provided some relief when earlier this morning it reported a modest, unexpected profit of €256 million for the third quarter on lower litigation and restructuring costs, beating consensus estimates of a €394 million loss, and a far better number than the €6 billion loss reported one year ago. Revenues were also a modest improvement to consensus expectations of €7.19BN, coming in at €7.49BN as a result of a 14% jump in fixed income trading revenues.
The bank’s closely watched core tier one capital ratio rose from 10.8% at the end of June to 11.1% at the end of September, as Deutsche cut its risk-weighted assets by €18bn to €385bn. CFO Marcus Schenck said that the ratio would get a further boost of 40 to 50 basis points once the sale of its stake in Chinese lender Hua Xia was completed.
CEO John Cryan repeated that Deutsche was making “good progress” on its restructuring, but admitted that results had been “overshadowed” by its negotiations with the DOJ. “This had an unsettling effect. The bank is working hard on achieving a resolution of this issue as soon as possible.”
The failure to provide some additional guidance on the bank’s settlement process as well as on its recapitalization status is why the shares have undone the entire 3% gap higher, and were trading fractionally in the red. Raising a red flag, Deutsche Bank also said that it saw €9BN in outflows from its new business for private, wealth and commercial clients in the third quarter.
In its Q3 interim report the bank revealed that it had suffered reduction in business volumes as result of “negative perceptions” concerning business and prospects amid talks tied to RMBS settlement with the DoJ, and added that it saw business reductions and asset outflows particularly in parts of global markets, wealth management business.
In a letter to employees, CEO Cryan said that Deutsche Bank’s end-3Q liquidity reserve was ~€200b, down €23 billion from a quarter earlier, and said that the bank’s situation will remain tough for some time. He also said that while talks with DOJ advancing, and it was working to resolve matter as soon as possible, the environment worsened in some important areas.
On the conference call Cryan said that the bank needs to “restructure and modernize the bank faster and with higher intensity,” and added the following remarks:
- “We are taking steps now particularly to achieve additional cost savings and RWA reductions”
- “We are also addressing the more challenging outlook in our planning to ensure we achieve our financial goals”
- “We aim to be more ambitious in headcount reduction” and “give preference to internal candidates”
Finally, when looking at the results, Wall Street analysts said that that while the positive surprise is a relief, it’s was also mostly irrelevant because of potential impact from DOJ settlement.
Deutsche Bank’s U.S.-listed shares fell $0.04 (-0.27%) to $14.52 in premarket trading Thursday. Year-to-date, DB has fallen 39.71%.
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