Deutsche Bank (DB) Q1 Earnings Disappoint, Revenues Down
Deutsche Bank AG DB reported net income of €120 million ($147.5 million) in first-quarter 2018, which tanked 79% on a year-over-year basis. Income before income taxes plunged 50.8% year over year to €432 million ($531 million).
Lower revenues, mainly due to exchange rate movements, were an undermining factor. Moreover, expenses escalated in the reported quarter. Notably, net asset outflows were recorded during the quarter. However, reduction in provisions was a positive.
Weak Revenues & Low Provisions Recorded, Costs Rise
The bank reported net revenues of €7 billion ($8.6 billion) in the first quarter, down 5% year over year. Exchange rate movements, including the appreciation of the euro against the U.S. dollar, and lower revenues in the Corporate & Investment Bank led to this downside.
Revenues at the Corporate & Investment Banking (CIB) division of €3.8 billion ($4.7 billion) declined 13% compared with the year-ago quarter. Lower Equity Sales & Trading and Origination and Advisory revenues, along with reduced revenues in Global Transaction Banking (GTB), led to the fall. Moreover, reduction in Fixed Income & Currencies (FIC) revenues was recorded.
The Private & Commercial Bank (PCB) segment’s revenues totaled €2.6 billion ($3.2 billion), down 2% year over year. Results included non-recurring items.
The Asset Management (AM) segment generated revenues of €545 million ($669.9 million), down 10% year over year, mainly due to exchange rate movements and a loss associated with the sale of the German private equity business. Net asset outflows for the quarter were €8 billion ($9.8 billion).
The provision for credit losses plummeted 34% from the year-ago quarter to €88 million ($108.2 million). The decline resulted from releases in the CIB unit, mainly driven by favorable developments in the shipping segment.
Non-interest expenses of €6.5 billion ($7 billion) were up 3.2% from the prior-year quarter. Non-interest expenses included reduced restructuring, litigation and impairment costs.
Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation (CRR)/Capital Requirements Directive 4 (CRD 4) fully loaded) came in at 13.4% as of Mar 31, 2018, compared with 11.8% recorded as of Mar 31, 2017. Leverage ratio, on an adjusted fully-loaded basis, was 3.7% as of Mar 31, 2018, up from 3.4% in the prior-year quarter. Risk-weighted assets amounted to €354 billion ($436.5 billion) as of Mar 31, 2018, down 1.1% year over year.
Deutsche Bank reported a decent quarter. To resist another financial meltdown, banks in Europe are under stringent regulatory pressure to maintain a sturdy capital position. Deutsche Bank is focused on its series of additional actions and new financial targets, replacing the ones announced in October 2015.
Furthermore, if the planned investment reaps benefits, the excess capital in the future shall be returned to shareholders, in turn, boosting their confidence.
Pointing at the slow turnaround of the bank so far, new chief executive officer — Christian Sewing — motivated its employees and stated that the bank would be aiming for higher revenues and drive improvement across all the business segments.
Though Deutsche Bank’s restructuring efforts look encouraging, it is really difficult to determine how much the bank will gain, considering the lingering headwinds. Moreover, dismal revenue performance remains another concern.
Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other foreign banks, Mitsubishi UFJ Financial Group, Inc. MTU, Itau Unibanco Holding S.A. ITUB and The Royal Bank of Scotland Group plc RBS are scheduled to report quarterly numbers on May 15, May 1 and Apr 27, respectively.
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