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A month has gone by since the last earnings report for Deutsche Bank (DB). Shares have added about 9.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Deutsche Bank due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Deutsche Bank Q1 Earnings Improve Y/Y on Higher Revenues
Deutsche Bank reported first-quarter 2022 net income of €1.23 billion ($1.38 billion) compared with the year-ago quarter’s €1.04 billion. Also, the German lender reported a profit before taxes of €1.7 billion ($1.91 billion), up 4% from the year-ago quarter.
First-quarter results benefited from higher net revenues and lower expenses. Strong capital deployment activities in the quarter were another positive. An increase in provision for credit losses was an offsetting factor.
Revenues Rise, Costs Decrease & Provisions Up
The bank generated net revenues of €7.3 billion ($8.2 billion) in the first quarter, up 1.3% year over year. This upside primarily resulted from higher revenues in all segments except Corporate & Other.
Non-interest expenses of €5.4 billion ($6.1 billion) decreased 4% from the prior-year quarter’s level despite a rise in annual bank levies. Adjusted costs ex-transformation charges and bank levies were down 3% year over year to €4.6 billion ($5.2 billion).
Provision for credit losses came in at €292 million ($327 million), up 3.1% from the first-quarter 2021 figure, which recorded €223 million.
Net revenues of €1.5 billion ($1.7 billion) at the Corporate Bank division were up 11% year over year. The segment recorded the highest revenues since the launch of the transformation program and the second consecutive quarter of double-digit revenue growth.
Investment Bank’s net revenues totaled €3.3 billion ($3.7 billion), up 7% year over year. This highlights growth in fixed income and currencies revenues, offset by a decline in origination and advisory revenues.
Private Bank reported net revenues of €2.2 billion ($2.5 billion), up 2% year over year. Higher revenues (excluding adjustments) from Private Bank Germany, along with the International Private Bank revenues, led to this upside.
Asset Management generated record net revenues of €682 million ($765 million), up 7% year over year, mainly aided by increased management fees. Net asset inflows excluding cash during the quarter were €5.7 billion ($6.3 billion).
Corporate & Other reported negative net revenues of €353 million ($396 million) compared with the negative net revenues of €73 million reported in the prior-year period.
Capital Release reported negative net revenues of €5 million ($5.6 million) against net revenues of €81 million recorded in the year-ago quarter.
Mixed Capital Ratios
Leverage ratio on an adjusted fully-loaded basis was 4.6%, stable compared with the year-ago quarter. Risk-weighted assets (RWA) were €24.8 billion ($27.6 billion) at the end of first quarter, compared with €25.7 billion reported in the year-ago quarter. The company remains ahead of its year-end 2022 targets for both leverage exposure and RWA reduction, and has cut leverage exposure by 86% and RWA by 61% since its creation in mid 2019.
However, Deutsche Bank’s CET1 capital ratio (fully loaded) came in at 12.8% as of Mar 31, 2022, down from the year-ago quarter’s 13.7%.
In first quarter, Deutsche Bank had completed around 50% of its €300-million share repurchase for termination, announced on Jan 26, 2022 as part of the bank’s aim to distribute approximately €700 million of capital to shareholders during the year. This repurchase program was completed in April.
Management expects revenues to be in the high end of €26-€27 billion range, backed by strong revenue momentum in its core business.
Loan growth of €2-€3 billion per quarter is expected for Corporate Bank and Private Bank.
Post-tax return on average tangible equity (RoTE) of 8% is targeted.
For the Core Bank, Deutsche Bank anticipates the post-tax RoTE to be above 9%.
Cost/income ratio of 70% is expected.
CET 1 capital ratio is anticipated at greater than 12.5%. Also, leverage ratio is likely to be around 4.5%.
Capital distribution of approximately €0.7 billion, including dividends and share buybacks, is anticipated.
Financial Targets for 2025
Revenues CAGR of 3.5-4.5% from 2021-2025 is anticipated with net revenues of approximately €30 billion in 2025.
This is likely to be backed by Corporate Bank revenue growth at a CAGR of 6-7% and Investment Bank revenues growth at a CAGR of 1-2%. Further, Private Bank revenues are expected to grow at a CAGR of 4-5% and Asset management revenues are expected to grow at a CAGR of 4-5%.
Management targets post-tax RoTE above 10%.
Cost/income ratio is expected to be below 62.5%.
CET1 capital ratio is expected to be maintained at approximately 13%, subject to a minimum threshold of 200 bps above the expected maximum distributable amount threshold of approximately 11%.
Total capital ratio is expected to be approximately 17.6%.
Average tangible equity is expected to increase at a CAGR of 5% for 2021-2025 (post capital distribution) driven by increased profits.
Minimum requirement for own funds and eligible liabilities is expected to be 32.8%.
Targeted leverage ratio is than 4.5%.
Total payout ratio of 50% of net income attributable to shareholders is anticipated in 2025 and beyond.
Dividend payments of €3.3 billion for fiscal years 2021-2024 is anticipated.
Capital distribution of approximately €8 billion for financial years 2021-2025.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 17.78% due to these changes.
Currently, Deutsche Bank has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Deutsche Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Deutsche Bank is part of the Zacks Banks - Foreign industry. Over the past month, HSBC (HSBC), a stock from the same industry, has gained 6.5%. The company reported its results for the quarter ended March 2022 more than a month ago.
HSBC reported revenues of $12.55 billion in the last reported quarter, representing a year-over-year change of -5.5%. EPS of $0.70 for the same period compares with $0.95 a year ago.
For the current quarter, HSBC is expected to post earnings of $0.96 per share, indicating a change of +12.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for HSBC. Also, the stock has a VGM Score of D.
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