Deutsche Bank Market expectations for the third quarter were crushed on Wednesday, amid higher interest rates and choppy market trading.
The bank reported net income of 1.115 billion euros ($1.11 billion) in the quarter. Analysts had forecast a net profit of 827 million euros, according to data from Refinitiv.
“We are seeing the benefit of interest rates in our corporate banking and private banks, mainly those with large deposit books and we are looking at our FIC. [fixed income and currencies] A business that manages this environment very well,” Deutsche Bank’s CFO, James von Moltke, told CNBC’s Joumanna Bercetche.
Chief Executive Officer Christian Tywing said in a statement that the bank is “well on track” to meet its 2022 targets. In the medium term, the bank said it aims to achieve a return on average firm equity of over 10% by 2025.
Here are other highlights for the quarter:
- Revenue rose 15% from a year ago to 6.92 billion euros.
- The common equity Tier 1 ratio, a measure of bank solvency, stood at 13.3% from 13% a year ago.
Deutsche Bank reports earnings for the third quarter.
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Looking at the bank’s individual segments, investment banking revenue grew by 6% over last year. In particular, revenues from fixed income and currencies rose 38% over the same period and helped offset lower performance in credit trading.
In this context, the bank’s origination and advisory revenue fell by 85% year-on-year, indicating less contracting – similar to some of its US peers.
Corporate banking, however, saw the biggest improvement in revenue across all segments, up 25% from a year ago.
Deutsche Bank said it had further reduced its exposure to Russian debt over the same period. The bank has been cutting ties with Russia in the wake of Moscow’s unprovoked invasion of Ukraine. As a result, additional contingency risk decreased to 0.2 billion euros from 0.6 billion euros at the end of the second quarter.
Higher interest rates in the long run?
The German bank reported higher provisions compared to the same quarter a year ago. These came to 350 million euros at the end of the third quarter, compared to 117 million euros at this time last year.
The bank said these reflected “more challenging macroeconomic forecasts”. Speaking to CNBC, von Moltke reiterated his expectation of a slowdown in Germany and the broader European market in 2023.
Deutsche Bank believes the European Central Bank will continue to raise rates despite poor growth expectations. At the moment, the key ECB rate stands at 0.75%.
“We think terminal rates are now starting to move towards our view, which could be 3% for the ECB and 5% to 5.5% for the central bank. I think the important thing is to get. Inflation is under control, so we are absolutely supportive of central bank action.” said von Moltke.
Deutsche Bank shares are down about 17% so far this year. The German lender beat expectations again Second quarter with a profit of 1.046 billion euros.
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