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Deutsche Bank's (DB) Q3 Earnings Decline Y/Y, Costs Increase

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Deutsche Bank's (DB) Q3 Earnings Decline Y/Y, Costs Increase

Lower revenues, primarily due to low volatility and reduced client activity, affect Deutsche Bank's (DB) Q3 earnings.

Deutsche Bank AG DB reported net income of €229 million ($267.4 million) in third-quarter 2018, which tanked 64.7% from year-ago quarter. Income before taxes plunged 45.8% to €506 million ($590.9 million).

Lower revenues and higher expenses were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower provisions were the main positives.

Revenues Fall, Provisions & Costs Rise

The bank reported net revenues of €6.2 billion ($7.2 billion) in the third quarter, down 9% year over year. Lower revenues in the Corporate & Investment Bank primarily due to low volatility and reduced client activity, led to this downside.

Revenues at the Corporate & Investment Banking (“CIB”) division of €3 billion ($3.5 billion) declined 13% from the year-ago quarter. Lower Fixed Income Sales & Trading revenues led to the fall.

The Private & Commercial Bank segment’s revenues totaled €2.5 billion ($2.9 billion), down 3% year over year. Decline in revenues from business outside Germany accounted for the fall.

The Asset Management segment generated revenues of €567 million ($662.1 million), down 10% year over year, mainly due to a one-time item that was recorded in the year-ago quarter. 

Provision for credit losses declined 51.1% from the year-ago quarter to €90 million ($105.1 million). The fall resulted largely from lower provisions in the CIB unit.

Non-interest expenses of €5.6 billion ($6.5 billion) were up 1.4% 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 14% as of Sep 30, 2018, compared with 13.8% as of Sep 30, 2017. Leverage ratio, on an adjusted fully-loaded basis, was 4% as of Sep 30, 2018, up from 3.8% in the prior-year quarter. Risk-weighted assets amounted to €342 billion ($405.3 billion) as of September end, down 3.4% year over year.

Our Viewpoint

Deutsche Bank reported a decent quarter. Slight decline in revenues was offset by relatively lower provisions. The company has made several strategic moves 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 #4 (Sell).

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

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will release September-ended quarter numbers on Oct 29. UBS Group AG UBS will report results on Oct 26 and Credit Suisse CS is slated to report on Nov 1.

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