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Deutsche (DB) Q1 Earnings Improve Y/Y on Lower Expenses

Zacks Equity Research

Deutsche Bank DB reported net income of €201 million ($467.1 million) in first-quarter 2019, up 67% from €120 million in the year-ago quarter. The bank reported profit before taxes of €292 million ($364.3 million).

First-quarter results benefited from net asset inflows and prudent expense management. Also, strong capital position remains a tailwind. However, lower revenues and higher provisions were the key undermining factors.

Lower Costs Offset Fall in Revenues & Higher Provisions

The bank generated net revenues of €6.4 billion ($6.4 billion) in the first quarter, down 9% year over year. Lower revenues across all the segments, primarily due to implementation of strategic measures and a challenging market environment, led to this downside.

Revenues at the Corporate & Investment Banking division of €3.3 billion ($3 billion) declined 13% from the year-ago quarter. Lower revenues in Sales & Trading (Fixed Income and Equity) along with Origination & Advisory revenues led to the fall.

The Private & Commercial Bank (“PCB”) segment’s revenues totaled €2.5 billion ($2.9 billion), down 5% year over year. Lower revenues from business in and outside Germany resulted in the decline.

The Asset Management segment generated revenues of €525 million ($587 million), down 4% year over year, mainly due to lower management fees. Notably, the company reported net asset inflows of €10 billion during the quarter. 

Provision for credit losses increased 60% from the year-ago quarter to €140 million ($287.8 million). The rise resulted largely from higher provisions in the PCB unit.

Non-interest expenses of €5.9 billion ($6.4 billion) were down 8% from the prior-year quarter. The decline resulted from the bank’s successful implementation of cost savings initiatives.

Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation/Capital Requirements Directive 4 fully loaded) came in at 13.7% as of Mar 31, 2019, compared with 13.4% as of Mar 31, 2018. Leverage ratio, on an adjusted fully-loaded basis, was 3.9%, up from 3.7% in the prior-year quarter. Risk-weighted assets declined €3 billion in the March-end quarter.

Our Viewpoint

Deutsche Bank reported a decent quarter. Decline in revenues was offset by relatively lower expenses. 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.

Performance of Other Foreign Banks

UBS Group AG UBS reported first-quarter 2019 net profit attributable to shareholders of $1.1 billion, down 27% from $1.6 billion in the prior-year quarter.

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will release March-ended quarter numbers on Apr 29. Mitsubishi UFJ Financial Group MUFG will report results on May 21.

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