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Deutsche Bank (DB) Down 9.2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Deutsche Bank (DB - Free Report) . Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Deutsche Bank due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Deutsche Bank Reports Q2 Loss as Revenues Decrease
Marred by significant restructuring costs, Deutsche Bank reported second-quarter 2019 net loss of €3.15 billion ($3.54 billion) against net income of €401 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €946 million ($1.06 billion).
Second-quarter results were affected by rise in expenses. Lower revenues and higher provisions were other undermining factors. However, strong capital position and net inflows were tailwinds.
Excluding strategic transformation charges of €3.4 billion ($3.82 billion), Deutsche Bank reported net income of €231 million ($259.69 million).
Revenues Decline, Expenses and Provisions Rise
The bank generated net revenues of €6.2 billion ($7 billion), down 6% year over year. Lower revenues across most of the segments, primarily due to implementation of strategic measures and a challenging market environment, led to this downside.
Net revenues at the Corporate & Investment Banking (“CIB”) division of €2.94 billion ($3.31 billion) declined 18% from the year-ago quarter. Lower revenues in Sales & Trading (Fixed Income and Equity) along with Origination & Advisory revenues led to the fall.
The Private & Commercial Bank segment’s net revenues totaled €2.5 billion ($2.8 billion), down 2% year over year. Lower revenues from business outside Germany and global wealth management unit resulted in the decline.
Asset Management segment generated net revenues of €593 million ($667 million), up 6% year over year, mainly due to higher performance fees. Notably, the company reported net new money inflows of €4 billion ($4.5 billion) during the quarter.
Net revenues at Corporate & Other unit came in at €182 million ($204.6 million) for the quarter against negative net revenues of €91 million a year ago.
Provision for credit losses increased 70% from the year-ago quarter to €161 million ($181 million). The rise resulted largely from higher provisions in the CIB unit as the bank prepares itself against forecasted weaker macroeconomic conditions.
Non-interest expenses of €7 billion ($7.9 billion) were up 21% from the prior-year quarter. Excluding restructuring-related charges, the bank reported adjusted costs of €5.7 billion ($6.4 billion), up 2%.
Deutsche Bank’s Common Equity Tier 1 capital ratio (fully loaded) came in at 13.4% as of Jun 30, 2019, compared with 13.7% as of Jun 30, 2018. Leverage ratio, on an adjusted fully-loaded basis, was 3.9%, down from 4% in the prior-year quarter. Risk-weighted assets declined €1 billion in the June-ended quarter to €347 billion ($390 million).
Outlook for 2019
Common Equity Tier 1 capital ratio is expected to be negatively impacted by pending supervisory assessments and the strategic update recently announced. But it is expected to remain around 13% through 2019. At the end of 2019, Leverage Ratio (fully loaded) will be above 4%, and risk weighted assets and Leverage exposure are likely to be lower than the 2018 level.
The company expects revenues for 2019 to be essentially lower year over year. This decline should mainly be due to its exit from Equities Sales & Trading business.
For the Group, the bank is committed to reducing adjusted costs in 2019 to €21.5 billion, and to reducing internal workforce to below 90,000 full-time employees. It expects to benefit from the run-rate impact of measures executed in 2018, as well as from the impact of German retail integration and from transformation-related business exits.
The transformation charges relate mostly to impairments in software and real estate assets, and are expected to amount up to €0.6 billion. In addition to the impairments, restructuring and severance charges of approximately €1.0 billion are expected for full-year 2019 as part of an aggregate incremental €2.3 billion of restructuring and severance between 2019 and 2022.
Further, the company anticipates an increase in provision for credit losses in 2019 from last year. Also, cost income ratio and post-tax return on tangible shareholders equity in 2019 are likely to be negatively impacted by the upfront costs to execute its strategy.
For 2019, the company forecasts net litigation charges (subject to many uncertainties) to be significantly higher than in 2018.
For Corporate Bank, revenues are likely to be essentially flat year over year. For Investment Bank, revenues might come lower. Revenues in Private Bank are likely to be essentially flat. For the year, revenues in the Capital Release Unit are expected to be significantly lower.
Segment Outlook
Corporate & Investment Bank revenues for 2019 are expected to be significantly lower than 2018, on account of unfavorable macroeconomic and financial market environment due to concerns over Brexit, U.S.-China trade relations and the general slowdown in global growth and concerns around the macro credit environment. Furthermore, the planned restructuring of the division will impact revenues with materially lower revenue contribution expected from Sales & Trading Equities. This is expected following the decision to exit this business and the costs of accelerating the wind-down of certain assets within the new Capital Release Unit.
In Private & Commercial Bank, the company expects growth in investment and loan businesses in 2019. In the investment businesses, it plans to grow net new assets, and to continue hiring relationship managers in core markets and expects to be able to leverage pricing opportunities in a normalizing market environment. In the loan businesses, it targets to further accelerate growth in 2019 within existing risk management framework and with focus on consumer and commercial loans. Margin pressure on deposit products is likely to continue in the ongoing low interest rate environment. Also, decline in revenue base is expected as a result of business divestitures in Poland and Portugal. Given these aforementioned opposing revenue trends, PCB revenues are to remain essentially flat in 2019.
For Asset Management, AUM is expected to increase at the end of 2019. Net flows are expected to be positive across all major asset classes driven by passive and alternative investments. Also, AM revenues are likely to be essentially flat year over year. Management fees are assumed to be essentially stable. Performance and transaction fees are expected to be significantly higher than 2018, driven by an episodic Alternative Investment performance fee recognized in the second quarter of 2019.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
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Deutsche Bank (DB) Down 9.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Deutsche Bank (DB - Free Report) . Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Deutsche Bank due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Deutsche Bank Reports Q2 Loss as Revenues Decrease
Marred by significant restructuring costs, Deutsche Bank reported second-quarter 2019 net loss of €3.15 billion ($3.54 billion) against net income of €401 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €946 million ($1.06 billion).
Second-quarter results were affected by rise in expenses. Lower revenues and higher provisions were other undermining factors. However, strong capital position and net inflows were tailwinds.
Excluding strategic transformation charges of €3.4 billion ($3.82 billion), Deutsche Bank reported net income of €231 million ($259.69 million).
Revenues Decline, Expenses and Provisions Rise
The bank generated net revenues of €6.2 billion ($7 billion), down 6% year over year. Lower revenues across most of the segments, primarily due to implementation of strategic measures and a challenging market environment, led to this downside.
Net revenues at the Corporate & Investment Banking (“CIB”) division of €2.94 billion ($3.31 billion) declined 18% from the year-ago quarter. Lower revenues in Sales & Trading (Fixed Income and Equity) along with Origination & Advisory revenues led to the fall.
The Private & Commercial Bank segment’s net revenues totaled €2.5 billion ($2.8 billion), down 2% year over year. Lower revenues from business outside Germany and global wealth management unit resulted in the decline.
Asset Management segment generated net revenues of €593 million ($667 million), up 6% year over year, mainly due to higher performance fees. Notably, the company reported net new money inflows of €4 billion ($4.5 billion) during the quarter.
Net revenues at Corporate & Other unit came in at €182 million ($204.6 million) for the quarter against negative net revenues of €91 million a year ago.
Provision for credit losses increased 70% from the year-ago quarter to €161 million ($181 million). The rise resulted largely from higher provisions in the CIB unit as the bank prepares itself against forecasted weaker macroeconomic conditions.
Non-interest expenses of €7 billion ($7.9 billion) were up 21% from the prior-year quarter. Excluding restructuring-related charges, the bank reported adjusted costs of €5.7 billion ($6.4 billion), up 2%.
Deutsche Bank’s Common Equity Tier 1 capital ratio (fully loaded) came in at 13.4% as of Jun 30, 2019, compared with 13.7% as of Jun 30, 2018. Leverage ratio, on an adjusted fully-loaded basis, was 3.9%, down from 4% in the prior-year quarter. Risk-weighted assets declined €1 billion in the June-ended quarter to €347 billion ($390 million).
Outlook for 2019
Common Equity Tier 1 capital ratio is expected to be negatively impacted by pending supervisory assessments and the strategic update recently announced. But it is expected to remain around 13% through 2019. At the end of 2019, Leverage Ratio (fully loaded) will be above 4%, and risk weighted assets and Leverage exposure are likely to be lower than the 2018 level.
The company expects revenues for 2019 to be essentially lower year over year. This decline should mainly be due to its exit from Equities Sales & Trading business.
For the Group, the bank is committed to reducing adjusted costs in 2019 to €21.5 billion, and to reducing internal workforce to below 90,000 full-time employees. It expects to benefit from the run-rate impact of measures executed in 2018, as well as from the impact of German retail integration and from transformation-related business exits.
The transformation charges relate mostly to impairments in software and real estate assets, and are expected to amount up to €0.6 billion. In addition to the impairments, restructuring and severance charges of approximately €1.0 billion are expected for full-year 2019 as part of an aggregate incremental €2.3 billion of restructuring and severance between 2019 and 2022.
Further, the company anticipates an increase in provision for credit losses in 2019 from last year. Also, cost income ratio and post-tax return on tangible shareholders equity in 2019 are likely to be negatively impacted by the upfront costs to execute its strategy.
For 2019, the company forecasts net litigation charges (subject to many uncertainties) to be significantly higher than in 2018.
For Corporate Bank, revenues are likely to be essentially flat year over year. For Investment Bank, revenues might come lower. Revenues in Private Bank are likely to be essentially flat. For the year, revenues in the Capital Release Unit are expected to be significantly lower.
Segment Outlook
Corporate & Investment Bank revenues for 2019 are expected to be significantly lower than 2018, on account of unfavorable macroeconomic and financial market environment due to concerns over Brexit, U.S.-China trade relations and the general slowdown in global growth and concerns around the macro credit environment. Furthermore, the planned restructuring of the division will impact revenues with materially lower revenue contribution expected from Sales & Trading Equities. This is expected following the decision to exit this business and the costs of accelerating the wind-down of certain assets within the new Capital Release Unit.
In Private & Commercial Bank, the company expects growth in investment and loan businesses in 2019. In the investment businesses, it plans to grow net new assets, and to continue hiring relationship managers in core markets and expects to be able to leverage pricing opportunities in a normalizing market environment. In the loan businesses, it targets to further accelerate growth in 2019 within existing risk management framework and with focus on consumer and commercial loans. Margin pressure on deposit products is likely to continue in the ongoing low interest rate environment. Also, decline in revenue base is expected as a result of business divestitures in Poland and Portugal. Given these aforementioned opposing revenue trends, PCB revenues are to remain essentially flat in 2019.
For Asset Management, AUM is expected to increase at the end of 2019. Net flows are expected to be positive across all major asset classes driven by passive and alternative investments. Also, AM revenues are likely to be essentially flat year over year. Management fees are assumed to be essentially stable. Performance and transaction fees are expected to be significantly higher than 2018, driven by an episodic Alternative Investment performance fee recognized in the second quarter of 2019.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.