Deutsche Bank reports higher profit as loan charges fall

Deutsche Bank AG’s businesses did better than expected in the third quarter but higher costs and a continued slowdown in its investment-banking arm weighed on results.

Quarterly net profit rose 6% to €329 million, equivalent to $381 million, aided by a decline in provisions for bad loans related to the pandemic. Analysts had forecast a profit of €280 million. Revenue rose 2%, mostly due to a strong performance from the bank’s asset-management business.

The German lender said it remains on track to meet its ambitious financial targets next year, a key test for Chief Executive Christian Sewing, who has vowed to make the bank leaner and more profitable after years of broken promises from his predecessors. One of its biggest challenges will be reducing the bank’s cost-to-income ratio, a measure of efficiency, to 70% next year from about 90%.

The bank has faced higher expenses related to regulatory obligations than expected. It is trying to cut costs elsewhere and has incurred one-off charges that have raised the cost of its restructuring under Mr. Sewing.

Like other global banks, Deutsche Bank’s Wall Street businesses have thrived over the past year as companies raised money and investors tweaked their portfolios around the pandemic, interest-rate policy and inflation. The bank also benefited from being based in Germany, whose government spent hundreds of billions of euros to keep the economy afloat.

In the third quarter, the bank set aside €117 million to cover for bad debt, down from €273 million a year earlier. The European Central Bank recently warned that the continent’s banks aren’t out of the woods yet because borrowers could run into trouble as government support is withdrawn.

Higher merger fees weren’t enough to offset a decline in fixed-income trading, and overall investment banking revenue fell 6% in the quarter. Deutsche Bank exited stock trading in 2019.

The division’s stumble was milder than analysts had expected but made Deutsche Bank an outlier on Wall Street. Other big banks reported big jumps in investment-banking fees as companies continued to merge and issue securities, with markets setting record highs. Chief Financial Officer James von Moltke said Deutsche Bank has less exposure to the U.S., the center of the deal-making frenzy.

Revenue fell slightly in the bread-and-butter retail bank, which like other European lenders has been squeezed by low interest rates. Banks earn less on loans but can’t cut the interest they pay depositors as deeply.

Persistently high inflation has put pressure on the ECB to raise rates to cool the economy, but the central bank has signaled it is reluctant to do so and believes higher prices are temporary.

Deutsche Bank has been able to offset some of the pressure by charging deposit fees to corporate and retail customers who hold a lot of cash at the bank. It has also pushed them to move their money from traditional bank accounts into investment accounts that charge fees.

This story has been published from a wire agency feed without modifications to the text



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