The bottom line is that Deutsche Bank earned less due to a higher tax rate, but remained above the analysts’ consensus forecast. Higher expenses were offset by lower provisions for loans at risk of default.
Pre-tax profit rose by 7 percent to 1.72 billion euros in the period from June to September. Analysts had expected 1.58 billion in a consensus published by the bank itself. However, the profit attributable to shareholders fell by 8 percent to 1.03 billion euros due to a higher tax rate.
Thanks to higher interest rates, income increased slightly more than expected by 3 percent to 7.13 billion euros.
The return on equity, which CEO Christian Sewing wants to raise to over 10 percent by 2025, was 7.3 percent after 8.2 percent in the previous year.
Despite the problems at Postbank, confidence is growing at the parent company, Deutsche Bank. The board of directors is confident that it will not only be able to achieve the strategic goals set for 2025, but even exceed them, wrote CEO Christian Sewing on Wednesday in a letter to employees on the occasion of the balance sheet for the third quarter.
CFO James von Moltke estimated the additional costs associated with Postbank on Wednesday at around 30 to 35 million euros in the fourth quarter. In the third quarter it was less than 10 million euros, said von Moltke when presenting the quarterly balance sheet. At the same time, the conversion of the IT systems at the fund subsidiary DWS is getting out of hand – and is becoming significantly more expensive.
Nevertheless, in a letter to employees, group boss Christian Sewing was confident that he would not only be able to achieve the strategic goals set for 2025, but even exceed them.
The news was rewarded with a jump in price on the stock market: Deutsche Bank shares had risen by 6.6 percent by midday, making them the leader in the DAX 40. However, compared to the turn of the year last year, they had still lost around four percent. The DWS share, however, was one of the weakest stocks in the SDAX, down 2.6 percent on Wednesday.
In recent months there have been significant complaints from Postbank customers, particularly in connection with the IT change. During the system change, twelve million Postbank customers were gradually brought together on one platform with seven million Deutsche Bank customers in Germany. According to consumer advocates, they complained, for example, about blocked accounts and delayed follow-up financing. A special representative on behalf of the financial regulator Bafin is now monitoring that Deutsche Bank gets the problems under control.
According to Sewing, two thirds of the backlog has now been processed. “This gives us great confidence that we will be able to offer our customers the level of service that they rightly expect from us as planned by the end of the year,” wrote the CEO in a letter to employees. According to its own statements, the institute has made great progress, especially with seizure protection accounts, in which indebted people can protect assets from seizure, and payouts of construction financing at the DSL Bank.
In connection with the Postbank problems, Deutsche Bank set aside 25 million euros as risk provisions for possible loan defaults. A similar amount could be incurred in the fourth quarter, said Moltke’s finance director.
There are also difficulties in converting the computer systems of the fund subsidiary DWS. The original plans were too optimistic in terms of time and costs, said DWS boss Stefan Hoops. “It is clear at this point that we will have another year of significant IT build-out costs, corresponding to 2023, leading to further transformation costs in 2024.” This involves around 100 million euros each. In addition, the hoped-for savings are unlikely to occur until later, said Hoops.
In contrast to the IT conversion at Postbank, DWS is not about customer-related systems. The fund company wants to break away from its parent company on many administrative issues – as long as it can do it itself and cheaper.
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In the third quarter, Deutsche Bank suffered a decline in profits due to higher taxes. While pre-tax profit rose by seven percent to 1.7 billion euros, shareholders received a surplus of over one billion euros, eight percent less than a year earlier. However, analysts had expected a steeper decline. The financial institution only set aside a total of 245 million euros for possible loan defaults, around 100 million less than a year earlier.
Despite the sharp rise in interest rates, the DAX group’s total income only grew by three percent to 7.1 billion euros. While there was a significant increase in the corporate bank and a slight increase in the private customer bank, the group suffered declines in the investment bank and the fund subsidiary DWS. The more difficult market environment slowed down business in both segments.
The fact that Germany’s largest financial institution earned more before taxes than in the previous year was thanks to its own corporate bank. The division doubled its pre-tax profit to 805 million euros, while the other areas achieved less pre-tax profit than in the third quarter of 2022.
For the year as a whole, CEO Sewing now expects higher earnings for the group: They should reach around 29 billion euros and thus around the upper end of the previous target range.
Meanwhile, the board sees the bank in a position to release a further 3 billion euros in capital by 2025. This increases the potential to increase distributions to shareholders, wrote Sewing – beyond the 8 billion euros that the group had already announced. However, the bank will not distribute part of the additional 3 billion, but will use it to invest in the business, noted CFO von Moltke. However, the board is already considering buying back more shares in 2024.
Deutsche Bank shares in demand – payouts in view
An unexpectedly good quarterly report, a better operational outlook and the prospect of increasing shareholder returns from Deutsche Bank boosted the financial institution’s shares on Wednesday. In contrast, the shares of the fund subsidiary DWS fell significantly after quarterly figures.
In the morning, the securities of Germany’s largest financial institution temporarily exceeded the 200-day line, which is considered an indicator of the longer-term trend. Most recently, the shares were up 7.36 percent on XETRA at 10.20 euros, making them the clear leader in the DAX. So far this year, the titles are only in the middle range at minus 4 percent.
The institute earned more than expected in the third quarter despite a decline in profits. While there was a significant increase in the corporate bank and a slight increase in the private customer business, the group suffered declines in investment banking and at DWS. The more difficult market environment slowed down business in both segments. However, the board was confident that it would be able to exceed the targets for 2025 and sees the bank in a position to release a further three billion euros in capital by 2025. The management board is already considering further share buybacks for 2024.
Industry expert Kian Abouhossein from the US bank JPMorgan rated the quarterly figures as solid and praised the common equity Tier 1 capital ratio of 13.9 percent as strong. The figures should also be viewed positively against the background of the statements on capital resources and possible capital repayments.
In contrast, analyst Anke Reingen from the Canadian bank RBC spoke of mixed numbers overall. Although the bank benefited from higher interest rates, it suffered from higher liquidity costs. But she also highlighted the CET1 capital ratio as positive.
Contrary to the price rally at Deutsche Bank, DWS shares noticeably increased their losses during trading and fell to their lowest level in more than three months. Most recently, they were one of the biggest losers in the SDAX small cap index, with a price discount of 3.2 percent at EUR 27.50. In October alone the minus now adds up to almost 15 percent. There has so far been a decline of a good 9 percent for 2023.
The fund company collected additional money from investors in the third quarter. Although earnings were lower than in the previous year, the bottom line was that profit remained stable. Meanwhile, the DWS board continues to struggle with cutting costs. Above all, the costs of converting the computer systems are getting out of hand. Company boss Stefan Hoops warned of another year of significant IT setup costs and now expects the savings planned for 2024 later. The statements about IT costs during the telephone conference increased the pressure on the share price in the morning, although the support of the past few months remained around the 27 euro mark.
Regarding the figures presented by DWS, RBC analyst Mandeep Jagpal wrote that they were mixed. The adjusted pre-tax profit was a positive surprise, while the net cash inflows without cash products were clearly disappointing.
FRANKFURT (dpa-AFX Broker) –
DZ Bank raises fair value for Deutsche Bank – ‘Buy’
According to quarterly figures, DZ Bank increased the fair value for Deutsche Bank from 12.30 to 12.50 euros and left the rating at “buy”. The financial institution presented solid figures overall, wrote analyst Timo Dums in a study available on Wednesday. He particularly praised the announced additional distributions to shareholders.
FRANKFURT (Dow Jones/dpa-AFX)
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