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Deutsche Bank's (DB) Q2 Earnings Decline Y/Y, Costs Increase

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Deutsche Bank's (DB) Q2 Earnings Decline Y/Y, Costs Increase

Deutsche Bank (DB) Q2 results reflect lower revenues and higher expenses. It remains on track to execute strategic actions laid down by its CEO.

Deutsche Bank AG DB reported net income of €401 million ($467 million) in second-quarter 2018, which tanked 13.7% from year-ago quarter. Income before income taxes plunged 13.5% year over year to €711 million ($828.1 million).

Lower revenues and higher expenses were the key undermining factors. Moreover, provisions for credit losses increased. Notably, net asset outflows were recorded during the quarter. However, strong capital position was a positive.

Revenues Fall, Provisions & Costs Rise

The bank reported net revenues of €6.6 billion ($7.7 billion) in the second quarter, down slightly year over year. Lower revenues in the Corporate & Investment Bank primarily led to this downside.

Revenues at the Corporate & Investment Banking (CIB) division of €3.6 billion ($4.2 billion) declined 1.1% from the year-ago quarter. Lower Equity Sales & Trading revenues led to the fall. Moreover, reduction in Fixed Income & Currencies revenues was recorded.

The Private & Commercial Bank (PCB) segment’s revenues totaled €2.5 billion ($3 billion), down slightly year over year. Decline in revenues from business outside Germany accounted for the fall.

The Asset Management segment generated revenues of €561 million ($653.4 million), down 20.7% year over year, mainly due to lower performance fees. Net asset outflows for the quarter were €5 billion ($5.8 billion).

The provision for credit losses rose 20.3% from the year-ago quarter to €95 million ($110.6 million). The rise resulted from provisions made in the CIB and PCB units.

Non-interest expenses of €5.8 billion ($6.7 billion) were up 1.2% from the prior-year quarter. Non-interest expenses included higher restructuring costs due to the earlier announced strategy adjustments, including reshaping the CIB unit.

Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation (CRR)/Capital Requirements Directive 4 (CRD 4) fully loaded) came in at 13.7% as of Jun 30, 2018, compared with 11.8% as of Jun 30, 2017. Leverage ratio, on an adjusted fully-loaded basis, was 4% as of Jun 30, 2018, up from 3.2% in the prior-year quarter. Risk-weighted assets amounted to €348 billion ($405.3 billion) as of June end, down 2% year over year.

Our Viewpoint

Deutsche Bank reported a decent quarter. Slight decline in revenues was marred by relatively higher provisions. Since taking the charge to rebound bank’s performance, the new chief executive officer — Christian Sewing — has taken several strategic decisions to boost revenues and drive improvement across all the business segments.

Though Deutsche Bank’s restructuring efforts look encouraging, it is really difficult to determine how much the bank will gain, considering the lingering headwinds. Moreover, dismal revenue performance remains another concern.

Deutsche Bank Aktiengesellschaft Price and Consensus

Deutsche Bank Aktiengesellschaft Price and Consensus | Deutsche Bank Aktiengesellschaft Quote

Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks & Upcoming Release

Bank of Hawaii Corporation BOH reported second-quarter 2018 earnings per share of $1.30, in line with the Zacks Consensus Estimate. The reported figure compared favorably with $1.05 earned in the prior-year quarter.

UBS Group AG UBS reported second-quarter 2018 net profit attributable to shareholders of CHF 1.28 billion ($1.30 billion), up around 9% from the prior-year quarter.

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will release June-ended quarter numbers on Jul 30.

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