Deutsche Bank (DBK) Third Quarter Earnings

Deutsche Bank shares fell on Wednesday after the lender’s return to profit in the third quarter failed to impress.

Net profit attributable to shareholders stood at 1.461 billion euros ($1.58 billion) in the third quarter, compared with estimates of 1.047 billion euros in an LSEG poll of analysts.

Revenue reached 7.5 billion euros, compared with LSEG analyst forecasts of 7.338 billion euros.

Other highlights of the third quarter include:

• Profit before tax of 2.26 billion euros, up 31% year-on-year.
• Provision for loan losses of 494 million euros, up from 245 million euros in the same quarter last year.
• The CET1 capital ratio, a measure of bank solvency, was 13.8%, up from 13.5% in the second quarter.

• Return on tangible equity reached 10.2% (or 7.6% when adjusted for the lender’s litigation provisions), up from 7.3% year-on-year.

In a note, RBC analysts said the increase in provisions for credit losses was “disappointing, although not entirely unexpected”, describing revenues across the bank’s main divisions as “slightly soft”, as well as performance in investment banking. “Strong”.

“Given the relatively strong data, stocks may see some weakness following the third-quarter update,” RBC said.

Deutsche Bank shares fell more than 3% throughout the day before closing 0.9% lower.

Germany’s biggest lender had a loss of 143 million euros in the second quarterAt that time it was announced that it would not launch a second share buyback program this year in view of the provision of long-running litigation over the acquisition of its Postbank division. About 60% of the plaintiffs in the suit were based on allegations that Deutsche Bank had underpaid for its purchases, since settle down With the German bank in August.

“We really want to turn the page this year on all the legacy items that we have over time, because we don’t want to surprise investors with the type of provision that we had to make in the second quarter,” said Deutsche Bank’s chief financial officer. James von Moltke told CNBC’s Caroline Roth on Wednesday.

Deutsche Bank said the partial release of 440 million euros of litigation provisions in the third quarter helped boost profit, and the lender has now directed that it apply for share buybacks – a move previously blocked by postbank legal proceedings. Was given.

“We will continue on our path to profitable growth and exceed our original targets of distributing capital to shareholders,” Deutsche Bank CEO Christian Sewing said on Wednesday. Von Moltke clarified to CNBC that these are buybacks that the bank intends to execute next year.

The lender also noted that revenue from its investment bank divisions rose to 2.5 billion euros, up 11% compared to the same period last year, reflecting growth in its fixed income and currency units. Asset management net revenues were 660 million euros, up 11% year-on-year.

Von Moltke said both divisions delivered the bank’s “exceptional performance” in the third quarter, with the corporate and private banks also “doing exactly what we expected this year, which is to deal with the back-end of the interest rates cycle.” ” , and with the increase in fee and commission income, interest rate pressure has now eased.”

Touching on the broader macro framework, von Moltke on Wednesday acknowledged some disappointment with the pace of the economic recovery in Deutsche Bank’s native Germany and assessed that the situation from the third quarter has caught up to the fourth quarter.

“There’s always a certain amount of volatility around events like the election in a few weeks, the outcome of which could send currency swings,” he said in reference to the upcoming vote in the US. “And, of course, the election. “A reaction to what the expectations are for the policy change. So, for us, it’s quite encouraging.”

The performance of European lenders has been strong in recent years due to stock buybacks and dividends – and is now under pressure to deliver earnings growth to keep pace with the profitability of US counterparts in an environment of falling interest rates, after the European Central Bank began easing monetary policy in the summer.

“Looking back, while the industry has reduced costs and kept credit quality high, the improvement in returns from 2021 onwards will largely be driven by rising interest rates,” McKinsey analysts warned in the consulting firm’s Global Banking Annual Review 2024. It’s because of the rates.” To maintain the current ROTE (return on tangible equity) margins, banks will need to reduce costs by about 2.5 times as revenues fall.

Deutsche Bank, whose shares have risen nearly 30% so far this year, began broader trading in February cost-savings push The lender aims to reduce its workforce by 3,500 roles by 2025 – a figure which includes 800 cuts announced last year. The bank said that after adding 766 employees during the third quarter, its full-time workforce now stands at 90,236.

Market participants are surveying the broader banking sector, which now faces a potential takeover by Italy’s UniCredit, after Deutsche Bank distanced itself from the prospect of a long-awaited merger with domestic rival Commerzbank. Von Moltke said Deutsche Bank views the potential merger with “equanimity.”

Other European banks are also due to report third-quarter earnings in the coming days, including Barclays reporting on Thursday and Swiss giant UBS next week.

Correction: This story has been amended to correct the source of a quote from Christian Sewing.

, CNBC’s Ganesh Rao contributed to this report.