Thursday saw the publication of Deutsche Bank’s 10th consecutive quarter of profits, but the stock fell as analysts focused on the investment bank’s weakness and unclear outlook.
In the fourth quarter, Deutsche Bank posted a net profit of 1.8 billion euros ($1.98 billion), which increased its annual net income for 2022 to 5 billion euros, a 159% rise from the previous year.
The German lender beat a forecast of 4.29 billion euros for the year and nearly quadrupled a consensus estimate of 910.93 million euros for net profit for the fourth quarter among analysts surveyed by Reuters.
Despite the impressive net profit numbers, Deutsche Bank shares were 2.4% lower by mid-morning in Europe as investors focused on the macroeconomic outlook’s uncertainty, which was highlighted by the bank’s hesitation to announce a share repurchase at this time.
The results were “a touch mixed,” according to Amit Goel, co-head of European banks equity research at Barclays, as a solid revenue message for 2023 was offset by a weaker-than-expected fourth quarter in several other indicators, particularly the investment bank.
Goel stated that the revenue shortfall compared to the consensus and our projection was also primarily caused by lower IB and corporate center results, which were partially offset by the improved corporate bank. Within the IB, both FIC and origination and advice were lower.
In the fourth quarter, the investment bank’s total revenues decreased 12% from the prior year. Its contribution to the core bank’s pre-tax profit at Deutsche Bank decreased by 6% to 3.5 billion euros.
Plan for restructuring
The bank launched a comprehensive reorganization plan in 2019 to cut expenses and increase profitability. The full-year figures follow. By the end of 2022, Deutsche Bank had shut down its international sales and trading of equities, downsized its investment bank, and eliminated almost 18,000 workers.
The outcome is a huge improvement over the 1.9 billion euros announced in 2021, and CEO Christian Sewing claimed that over the previous three and a half years, the bank has been “effectively reformed.”
“By reorienting our company around our core competencies, we have dramatically increased our profitability, improved our balance, and reduced our costs. We proved this in 2022 by achieving our best performance in fifteen years,” Sewing said in a statement on Thursday.
“We have been able to support our clients during exceptionally challenging conditions because of the focused execution of our strategy, demonstrating our resilience with great risk control and excellent capital management,” the company said.
A crucial indicator used in Sewing’s transformation efforts, post-tax return on average tangible shareholders’ equity (RoTE), was 9.4% for the entire year, up from 3.8% in 2021.
Other highlights for the quarter include:
Compared to the fourth quarter of 2021, when loan loss provisions were 254 million euros, they were now 351 million euros.
A measure of bank solvency called the common equity tier 1 (CET1) ratio registered at 13.4%, up from 13.2% at the end of the previous year.
Overall net income was 6.3 billion euros, up 7% from 5.9 billion euros for the same period in 2021 but somewhat below consensus projections, bringing the yearly total to 27.2 billion euros in 2022.
Despite not announcing a share purchase, Deutsche also suggested a shareholder payout of 30 cents per share, up from 20 cents per share in 2021.
We’re delaying share repurchases for the time being because of the current environment’s uncertainties as well as some regulatory changes whose timing and scope we’d want to know. We believe that is the prudent course of action, but we intend to review that, said CFO James von Moltke on Thursday to CNBC.
In the second half of this year, the bank will probably reevaluate the prognosis, he continued, and he reiterated Deutsche’s goal of 8 billion euros in capital returns to shareholders through 2025.
A 39% increase in net interest income was reported by Deutsche’s corporate banking division, thanks to “increased interest rates, solid operating performance, business growth, and beneficial FX moves.”
The final quarter “tailed off”
The bank claimed that a decline in dealmaking that has recently afflicted the industry as a whole outweighed some positive factors.
When it came to our FIC (fixed income and currencies) business, the fourth quarter “fell off a little bit for us in November and December, but still had a record quarter for a fourth quarter, 8.9 billion [euros] for the full-year,” CFO von Moltke told CNBC’s, Annette Weisbach.
The result was fantastic, but it fell a little short of analyst expectations and our guidance in the final quarter of the year.
As long as market volatility remained, he claimed, the bank’s trading departments enjoyed a solid result in January.
That gives us some hope that our general outlook, which was that volatility and conditions in the macro companies would taper off over time, would be replaced, if you will, from a revenue perspective, by the growing activity in micro areas like credit, M&A, equity, and debt issuance, he said.
“We still see that as a thesis of what ’23 will look like,” someone said.