Things Better Than Expected For Deutsche Bank?
Deutsche Bank’s (DB) profits were down 58% in the first quarter of 2016, compared with the same time last year. The important thing, however, is that the company actually turned a profit. The big bank has admitted its struggles with its turnaround efforts, losing 6.8 billion euros last year due to restructuring and litigation costs.
So based on that information, Thursday’s report was a nice surprise:
- Q1 net income came in at 236 million euros, a 58% decline from this time last year.
- The bank generated revenue of 8.06 billion euros, a 22% decline from this time last year, but beating analysts’ estimates by 130 million euros.
- Investment-banking revenue was down 15% while the bank’s global stock and bond trading businesses were down 29% each.
- Asset management and private banking and wealth divisions were down 12% and 17%, respectively.
- Non-interest expenses fell 17%, mostly due to lower litigation costs.
- Litigation costs came in at 187 million euros, down from 1.54 billion euros from the first quarter last year.
“Financial markets were challenging during the first quarter, largely reflecting concerns about the outlook for the global economy,” co-CEO John Cryan said in a prepared statement. “This uncertainty led to a decline in client activity in the capital markets, and our revenues fell from the prior year, most notably in our trading and corporate finance businesses.”
Things looking up?
But despite all the doom and gloom that seems to be surrounding Deutsche Bank, there seems to be a small light at the end of the tunnel, at least for now. According to Cryan, there’s been enough improvement to the bank’s operations that the bank may potentially see a small profit in 2016. He hedged, however, saying it’s too early to tell for sure.
“Deutsche needs to raise capital, in our view,” Citigroup analyst Andrew Coombs said in a research note Thursday morning. “It may choose to wait until litigation issues have been resolved, but the further the share price falls, the more dilutive a capital raise becomes.”
But Deutsche Bank’s finance chief Marcus Schenck has reiterated the bank’s dedication to its current restructuring and long-term capital goals and projections. “We do not wish to repeat this,” he said when discussing the bank’s previous failures to meet restructuring goals and cost-cutting initiatives.
Not bad considering…
Deutsche Bank isn’t the only big bank that’s struggled this quarter. The entire banking industry, both in Europe and the United States, struggled, especially during the first month to month and a half when markets were down on uncertainty in China, the oil market and geopolitical risks.
So the more you know beyond the initial numbers, the better things are looking for Deutsche Bank. While the big bank still has miles to go before it sleeps and has a lot to prove to investors and analysts alike, the latest earnings report was very encouraging. Investors should continue to keep an eye on the bank to see how its restructuring efforts continue to change the bank’s position.
Disclosure: None.