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Deutsche Bank Beats Profit Expectations, Restores Dividend

By 2022-01-27 No Comments

Deutsche Bank Chief Executive Christian Sewing, pictured here last year, says the bank remains on track to meet financial targets this year.
Photo: Krisztian Bocsi/Bloomberg News

Deutsche Bank AG posted a rise in fourth-quarter profit, even though its investment-banking business took a hit from rising costs.

The better-than-expected result has paved the way for the bank to pay a dividend to shareholders for the first time since 2019. Shares of the bank were up over 5% midday in Europe.

Like major investment banks…

Deutsche Bank AG posted a rise in fourth-quarter profit, even though its investment-banking business took a hit from rising costs.

The better-than-expected result has paved the way for the bank to pay a dividend to shareholders for the first time since 2019. Shares of the bank were up over 5% midday in Europe.

Like major investment banks in the U.S., Deutsche Bank has posted bumper profits during the pandemic. Client activity boomed as companies raised huge amounts of capital and markets entered a furious period of trading. Those trends started to fade in recent months. But Deutsche Bank saw other units pick up steam in the fourth quarter, including its business catering to corporate clients.

Chief Financial Officer

James von Moltke
said he expects that to continue in 2022, with investment-banking revenue normalizing and possibly falling some, but its business of lending gaining momentum, particularly as interest rates rise.

The German lender said net profit rose 67% to €315 million, equivalent to $354 million, in the last three months of 2021 compared with the same quarter the year before. Analysts had forecast a profit of €26 million. Helping the results was a tax benefit of €234 million. Revenue rose 8%, even though costs rose more.

Chief Executive Christian Sewing said that the bank is on track to meet financial targets this year, including an 8% return on tangible equity—a key metric for profitability. It is also aiming for a cost-to-income ratio, a measure of efficiency, of 70%.

In a sign of the challenges still ahead, the figure stood at 94.3% in the final quarter of last year. Its return on tangible equity was 1.1%.

Deutsche Bank launched a major overhaul in 2019 that promised to scale back its Wall Street presence and cut costs. Higher compensation costs for bankers have made it harder to meet those goals. So have expenses related to regulatory obligations, which came in higher than anticipated in recent quarters. To offset those, the bank has tried to cut expenses elsewhere, raising the cost of its restructuring.

The bank said it has recognized most of the expenses related to its overhaul, which include severance to workers who left. The number of bank employees has dropped by about 8,000 since 2019. It originally promised to cut some 18,000 jobs. Mr. Sewing said better-than-expected revenue growth allowed the bank to be more flexible with that target.

Deutsche Bank posted its second straight year of profits and the highest since 2011 at €2.5 billion, opening the door for a dividend payout of €0.20 a share. The bank also said it is buying back €300 million in shares in the first half of this year, the first step in its commitment to return €5 billion to shareholders over time.

In March Mr. Sewing will unveil the bank’s strategy and new goals for the years ahead. The bank’s bread-and-butter lending business is expected to improve as central banks around the world raise interest rates.

Negative interest rates in the eurozone have made it difficult for institutions such as Deutsche Bank to earn money on the difference between what it pays for deposits and what it charges to lend.

Banks have tried to offset that by charging companies and retail clients for their deposits. Some of those gains have been reflected in Deutsche Bank’s results. Revenue at its corporate and retail businesses rose 10% and 4% respectively, in the fourth quarter.

Improvement for the bank’s lending and deposit-taking business can’t come fast enough for Deutsche Bank because its investment-banking unit is losing some of its shine. While revenue at that business rose 1% in the fourth quarter, compensation expenses jumped 30%. Its pretax profit was down about half compared with a year earlier.

“We are very concerned about the increasingly intense war for talent and the wage developments in our industry,” Mr. Sewing said, adding that the bank has no choice but to join the competition.

Deutsche Bank’s future also hinges on whether it can stay away from the types of trouble with regulators and authorities that have long dogged the bank. In December, The Wall Street Journal reported the U.S. Justice Department informed the bank that it may have violated a criminal settlement when it failed to tell prosecutors about an internal complaint over the sustainable investing business of its asset-management arm, DWS Group.

Mr. Sewing declined to comment on discussions with U.S. authorities.

Write to Patricia Kowsmann at [email protected]

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