German Bank on Wednesday, market expectations for the third quarter were crushed amid higher interest rates and turbulent market trading.
The bank reported net profit of 1.115 billion euros ($1.11 billion) for the quarter. Analysts had forecast a net profit of 827 million euros, according to data from Refinitiv.
“We see the benefit of interest rates coming through in our investment and private banking, especially those with large deposit books and we see our FIC [fixed income and currencies] The company manages this environment extremely well,” James von Moltke, Deutsche Bank’s CFO, told CNBC’s Joumanna Bercetche.
CEO Christian Sewing said in a statement that the bank is “well on track” to meet its 2022 targets. In the medium term, the bank said it aims to achieve a return on average tangible equity above 10% by 2025.
Here are other highlights for the quarter:
- Revenues increased by 15% compared to a year ago and amounted to 6.92 billion euros.
- The Common Equity Tier 1 ratio, a measure of bank solvency, was 13.3% from 13% a year ago.
Deutsch Bank reported profit for the third quarter.
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Looking at the bank’s individual divisions, investment banking revenues were up 6% from a year ago. In particular, revenues in fixed income and currencies were up 38% over the same period, helping to offset the lower performance in credit trading.
In this context, the bank said revenues in Origination and Advisory were down 85% year over year, indicating fewer deals, as was the case with some of its US peers.
However, Corporate Banking saw the largest revenue increase of all divisions, up 25% from a year ago.
Deutsche Bank also said it had further reduced its exposure to Russian credit during the same period. The bank has cut ties with Russia after Moscow’s unprovoked invasion of Ukraine. As a result, the additional contingent risk decreased to 0.2 billion euros, from 0.6 billion euros at the end of the second quarter.
Higher interest for longer?
The German bank reported higher provisions compared to the same quarter a year ago. They amounted to 350 million euros at the end of the third quarter, compared to 117 million euros around this time last year.
The bank said these reflected “more challenging macroeconomic forecasts”. Speaking to CNBC, von Moltke reiterated his expectation of a 2023 recession in Germany and the wider European market.
Despite poor growth expectations, Deutsche Bank believes the European Central Bank will continue to raise interest rates. At the moment, the main interest rate of the ECB is 0.75%.
“We think terminal rates have now started to converge in our view and that would probably be more like 3% for the ECB and 5% maybe 5.5%… for the Fed. I think that’s important because it’s crucial importance is to control inflation and that is why we fully support the actions of the central bank,” said von Moltke.
Shares of Deutsche Bank have fallen about 17% so far this year. The German lender exceeded expectations in the second quarter with a profit of 1.046 billion euros.