Deutsche Bank on Wednesday dampened market expectations for the third quarter, amid higher interest rates and choppy market trading.
The bank reported net income of 1.115 billion euros ($1.11 billion) for the quarter. Analysts had forecast a net profit of 827 million euros, according to data from Refinitiv.
“We see interest rate benefits coming through our corporate banks and private banks, basically those with large deposit books and we see our FIC [fixed income and currencies] businesses manage this environment very well,” James von Moltke, CFO of Deutsche Bank, told CNBC’s Joumanna Bercetche.
Chief Executive Officer Christian Sewing said in a statement that the bank was “well on track” to meet its 2022 goals. In the medium term, the bank said it aims to achieve an average return on tangible equity of over 10% by 2025.
Here are other highlights for the quarter:
- Revenue increased 15% from a year ago, and reached 6.92 billion euros.
- The Tier 1 Common Equity Ratio, a measure of bank solvency, stood at 13.3% from 13% a year ago.
Deutsch Bank reported earnings for the third quarter.
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Looking at individual bank segments, investment banking revenue increased 6% from a year ago. In particular, revenues in Fixed Income and Currencies increased by 38% over the same period and helped offset the lower performance in Credit Trading.
In this context, the bank said revenues in Origination and Advisory fell 85% year-on-year, pointing to lower dealmaking — as is the case with some US peers.
Corporate Banking, however, saw the biggest jump in revenue among all divisions, up 25% from a year ago.
Deutsche Bank also said it had further reduced its exposure to Russian credit over the same period. The bank has severed its ties with Russia following Moscow’s unprovoked invasion of Ukraine. As a result, additional contingency risk fell to 0.2 billion euros, from 0.6 billion euros at the end of the second quarter.
Higher interest rates for longer?
The German bank reported higher provisions compared to the same quarter last year. This came in at 350 million euros at the end of the third quarter, compared to 117 million euros at this time last year.
The bank said this reflected “a more challenging macroeconomic outlook.” Speaking to CNBC, von Moltke reiterated his expectation of a recession in 2023 in Germany and the wider European market.
Despite weak growth expectations, Deutsche Bank believes the European Central Bank will continue to raise rates. Currently, the main ECB rate is at 0.75%.
“We think the terminal rate has now started to converge in our view and that’s probably more like 3% for the ECB and 5% maybe 5.5% … for the Fed. I think that’s important because the critical thing is to get inflation under control and so we fully support the central bank’s actions,” von Moltke said.
Deutsche Bank shares are down about 17% so far this year. The German lender beat expectations in the second quarter with a profit of 1.046 billion euros.