We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Deutsche Bank's (DB) Q3 Earnings Impress on Lower Costs
Read MoreHide Full Article
Surprising markets, Deutsche Bank AG (DB - Free Report) reported net income of €278 million ($310.2 million) in third-quarter 2016, compared to a loss of €6 billion ($6.70 billion) in the prior-year period. Income before income taxes came in at €619 million ($690.6 million), as against a loss of €6.1 billion ($6.80 billion) in the year-ago quarter.
Results largely benefited from strength in sales and trading (debt) revenues and the company’s continued cost-control moves. However, on the down side, the quarter recorded higher provisions.
Notably, the results come as a little reprieve for Deutsche bank, which has lost nearly 40% on the NYSE year to date, reflecting investors' concern amid a challenging operating environment with low sometimes even negative rate scenario and global economic slowdown. Investors’ worries over the bank’s growth prospects were further aggravated following its confirmation of the proposed $14-billion settlement by the U.S. Department of Justice tied with mortgage practices.
In the latest release, Deutsche Bank’s Chief Executive Officer – John Cryan – stated, “We continued to make good progress on restructuring the bank. However, in the past several weeks these positive developments were overshadowed by the attention around our negotiations concerning the Residential Mortgage Backed Securities matter in the United States. This had an unsettling effect. The bank is working hard on achieving a resolution of this issue as soon as possible.”
While $14 billion may not be the final settlement amount, anything substantial will certainly compound woes for Deutsche Bank. The bank has shouldered significant legal settlements in the past as well, which affected its financials. Notably, the company increased its litigation reserve to €5.9 billion at the end of the third-quarter 2016, from 5.5 billion at the prior-quarter end.
Revenues Improve, Cost Down, Provisions Up
The bank reported net revenue of €7.4 billion ($8.36 billion) in the third quarter, up 2% year over year, mainly due to improved revenues in Global Markets. Excluding significant items, revenues declined in all other divisions owing to the impact of persistent low rate environment.
Deutsche Bank recorded provision for credit losses of €327 million ($364.8 million), up 58% year over year. The surge came on the back of higher provisions in Corporate & Investment Banking unit, reflecting sustained market stress in the shipping and oil & gas sectors.
Non-interest expenses of €6.55 billion ($7.30 billion) were down 50% from the year-ago quarter. Notably the prior-year quarter included impairment of goodwill and other intangible assets of €5.8 billion. Further, the company witnessed lower litigation expenses and performance-related compensation, partially offset by increase in IT costs. On an adjusted basis, expenses were down 5% year over year.
Segment Performance
Revenues at the Global Markets (GM) division climbed 10% from the prior-year quarter to €2.89 billion ($2.7 billion). The rise was primarily supported by solid performance in sales and trading (debt). However, the quarter recorded decline in revenues in Emerging Markets, Asia Pacific Local Markets and Equities, while foreign exchange revenues remained flat.
The Private, Wealth & Commercial Clients (PW&CC) segment’s revenues were up 20% year over year to €1.74 billion ($1.94 billion). The growth mainly reflected the absence of a negative net valuation impact tied with Hua Xia Bank Co. Ltd. stake of € 0.5 billion, recorded in the year-ago quarter against revenues in the reported quarter. Excluding such items, revenues fell about 5% year over year, primarily due to the persistent low interest rate environment and lower client activity.
Revenues at the Corporate & Investment Banking (CIB) division edged down 1% from the prior-year quarter to €1.96 billion ($2.20 billion). Transaction banking revenues reduced due to feeble demand and interest-rate driven margin pressure in the company’s trade and corporate cash management business. While advisory revenues decreased, the quarter recorded growth in Corporate Finance, driven by higher equity origination and debt origination revenues.
The Deutsche Asset Management (Deutsche AM) segment’s revenues jumped 30% year over year to €823 million ($918.2 million). Excluding the mark-to market movements impact on policyholder positions in Abbey Life, revenues were down 8% year over year.
At the PostBank unit, revenues of €779 million ($869.1 billion) decreased 7% from the year-ago figure, mainly due to the prevailing low interest rate environment.
Non-Core Operations Unit (NCOU) recorded negative revenues of €191 million ($213.1 million), compared to revenues in the prior-year quarter. The unit remained focus on de-risking in the quarter and recorded a year-over-year reduction of 55% in risk-weighted assets.
Capital Position
Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation (CRR)/Capital Requirements Directive 4 (CRD 4) fully loaded) was 11.1% as of Sep 30, 2016, compared with 11.5% as of Sep 30, 2015. Leverage ratio, on an adjusted fully loaded basis, was 3.5% as of Sep 30, 2016, down from 3.6% in the year-ago quarter. Risk-weighted assets amounted to €385 billion ($431.60 billion) as of Sep 30, 2016, down 6% year over year.
Our Viewpoint
Cryan, who succeeded co-CEO Anshu Jain last June, inherited the task of executing the bank’s “Strategy 2020,” which comprises several measures including initiatives to reposition Investment Banking, reduce cost, reorganize retail business and trim the geographic presence. Deutsche Bank’s revenue challenges should ease to some extent as it is expediting such efforts.
However, profitability remains threatened by a stressed operating environment with negative interest rates, slow growth of the European economy and global headwinds.
Among other foreign banks, UBS Group AG (UBS - Free Report) and The Royal Bank of Scotland Group plc are scheduled to report results on Oct 28, while Itau Unibanco Holding S.A. (ITUB - Free Report) will release on Oct 31.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Deutsche Bank's (DB) Q3 Earnings Impress on Lower Costs
Surprising markets, Deutsche Bank AG (DB - Free Report) reported net income of €278 million ($310.2 million) in third-quarter 2016, compared to a loss of €6 billion ($6.70 billion) in the prior-year period. Income before income taxes came in at €619 million ($690.6 million), as against a loss of €6.1 billion ($6.80 billion) in the year-ago quarter.
Results largely benefited from strength in sales and trading (debt) revenues and the company’s continued cost-control moves. However, on the down side, the quarter recorded higher provisions.
Notably, the results come as a little reprieve for Deutsche bank, which has lost nearly 40% on the NYSE year to date, reflecting investors' concern amid a challenging operating environment with low sometimes even negative rate scenario and global economic slowdown. Investors’ worries over the bank’s growth prospects were further aggravated following its confirmation of the proposed $14-billion settlement by the U.S. Department of Justice tied with mortgage practices.
DEUTSCHE BK AG Price
DEUTSCHE BK AG Price | DEUTSCHE BK AG Quote
In the latest release, Deutsche Bank’s Chief Executive Officer – John Cryan – stated, “We continued to make good progress on restructuring the bank. However, in the past several weeks these positive developments were overshadowed by the attention around our negotiations concerning the Residential Mortgage Backed Securities matter in the United States. This had an unsettling effect. The bank is working hard on achieving a resolution of this issue as soon as possible.”
While $14 billion may not be the final settlement amount, anything substantial will certainly compound woes for Deutsche Bank. The bank has shouldered significant legal settlements in the past as well, which affected its financials. Notably, the company increased its litigation reserve to €5.9 billion at the end of the third-quarter 2016, from 5.5 billion at the prior-quarter end.
Revenues Improve, Cost Down, Provisions Up
The bank reported net revenue of €7.4 billion ($8.36 billion) in the third quarter, up 2% year over year, mainly due to improved revenues in Global Markets. Excluding significant items, revenues declined in all other divisions owing to the impact of persistent low rate environment.
Deutsche Bank recorded provision for credit losses of €327 million ($364.8 million), up 58% year over year. The surge came on the back of higher provisions in Corporate & Investment Banking unit, reflecting sustained market stress in the shipping and oil & gas sectors.
Non-interest expenses of €6.55 billion ($7.30 billion) were down 50% from the year-ago quarter. Notably the prior-year quarter included impairment of goodwill and other intangible assets of €5.8 billion. Further, the company witnessed lower litigation expenses and performance-related compensation, partially offset by increase in IT costs. On an adjusted basis, expenses were down 5% year over year.
Segment Performance
Revenues at the Global Markets (GM) division climbed 10% from the prior-year quarter to €2.89 billion ($2.7 billion). The rise was primarily supported by solid performance in sales and trading (debt). However, the quarter recorded decline in revenues in Emerging Markets, Asia Pacific Local Markets and Equities, while foreign exchange revenues remained flat.
The Private, Wealth & Commercial Clients (PW&CC) segment’s revenues were up 20% year over year to €1.74 billion ($1.94 billion). The growth mainly reflected the absence of a negative net valuation impact tied with Hua Xia Bank Co. Ltd. stake of € 0.5 billion, recorded in the year-ago quarter against revenues in the reported quarter. Excluding such items, revenues fell about 5% year over year, primarily due to the persistent low interest rate environment and lower client activity.
Revenues at the Corporate & Investment Banking (CIB) division edged down 1% from the prior-year quarter to €1.96 billion ($2.20 billion). Transaction banking revenues reduced due to feeble demand and interest-rate driven margin pressure in the company’s trade and corporate cash management business. While advisory revenues decreased, the quarter recorded growth in Corporate Finance, driven by higher equity origination and debt origination revenues.
The Deutsche Asset Management (Deutsche AM) segment’s revenues jumped 30% year over year to €823 million ($918.2 million). Excluding the mark-to market movements impact on policyholder positions in Abbey Life, revenues were down 8% year over year.
At the PostBank unit, revenues of €779 million ($869.1 billion) decreased 7% from the year-ago figure, mainly due to the prevailing low interest rate environment.
Non-Core Operations Unit (NCOU) recorded negative revenues of €191 million ($213.1 million), compared to revenues in the prior-year quarter. The unit remained focus on de-risking in the quarter and recorded a year-over-year reduction of 55% in risk-weighted assets.
Capital Position
Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation (CRR)/Capital Requirements Directive 4 (CRD 4) fully loaded) was 11.1% as of Sep 30, 2016, compared with 11.5% as of Sep 30, 2015. Leverage ratio, on an adjusted fully loaded basis, was 3.5% as of Sep 30, 2016, down from 3.6% in the year-ago quarter. Risk-weighted assets amounted to €385 billion ($431.60 billion) as of Sep 30, 2016, down 6% year over year.
Our Viewpoint
Cryan, who succeeded co-CEO Anshu Jain last June, inherited the task of executing the bank’s “Strategy 2020,” which comprises several measures including initiatives to reposition Investment Banking, reduce cost, reorganize retail business and trim the geographic presence. Deutsche Bank’s revenue challenges should ease to some extent as it is expediting such efforts.
However, profitability remains threatened by a stressed operating environment with negative interest rates, slow growth of the European economy and global headwinds.
Deutsche Bank currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other foreign banks, UBS Group AG (UBS - Free Report) and The Royal Bank of Scotland Group plc are scheduled to report results on Oct 28, while Itau Unibanco Holding S.A. (ITUB - Free Report) will release on Oct 31.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>