It has been about a month since the last earnings report for Deutsche Bank (DB). Shares have lost about 6.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Deutsche Bank due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Deutsche Bank Posts Q4 Loss on Low Revenues, High Costs
Marred by significant restructuring costs, Deutsche Bank reported fourth-quarter 2019 net loss of €1.48 billion ($1.64 billion) compared with net loss of €409 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €1.29 billion ($1.43 billion).
Fourth-quarter results were majorly affected by transformation charges of about €608 million ($673 million) and restructuring and severance expenses of €473 million ($523.8 million). Also, lower revenues were an undermining factor. However, strong capital position and lower provisions were tailwinds.
In full-year 2019, the company reported net loss of €5.27 billion ($5.84 billion) against net income of €341 million in the previous year.
Revenues Decline, Provisions Fall
The bank generated net revenues of €5.35 billion ($5.93 billion), down 4% year over year. Lower revenues across most of the segments, exit from Equities Sales & Trading and a challenging market environment led to this downside.
In 2019, Deutsche Bank reported net revenues of €23.2 billion ($25.7 billion), down 8.5% from 2018.
Net revenues at the Corporate Bank division of €1.29 billion ($1.43 billion) declined 5% from the year-ago quarter. Lower revenues in global transaction banking along with commercial banking led to the fall.
Investment Bank segment’s net revenues totaled €1.52 billion ($1.68 billion), up 13% year over year. Higher revenues from fixed income and currency sales & trading resulted in the rise.
Private Bank reported net revenues of €1.99 billion ($2.2 billion), down 4%. The fall primarily stemmed from lower revenues from businesses within Germany and wealth management unit.
Asset Management segment generated net revenues of €671 million ($743.1 million), up 31% year over year, mainly due to higher management fees.
Corporate & Other unit reported negative net revenues of €59 million ($65.3 million) compared with negative net revenues of €8 million a year ago.
Capital Release unit reported negative net revenues of €179 million ($198.2 million) against net revenues of €294 million.
Provision for credit losses decreased 2% from the year-ago quarter to €247 million ($273.6 million).
Non-interest expenses of €6.4 billion ($7.1 billion) were up 13% from the prior-year quarter. Excluding restructuring-related charges, the bank reported adjusted costs of €5.1 billion ($5.65 billion), down 5.6%.
Deutsche Bank’s Common Equity Tier 1 capital ratio (fully loaded) came in at 13.6% as of Dec 31, 2019, stable year over year. Leverage ratio, on an adjusted fully-loaded basis, was 4.2%, up from 4.1%.
Risk-weighted assets declined €20 billion in the December quarter to €324 billion ($358.8 billion) sequentially.
Outlook for 2020
Common Equity Tier (CET) 1 capital ratio is expected to remain 12.5%. At the end of 2020, Leverage Ratio (fully loaded) is expected to be 4.5%.
For the Group, the bank is committed to reducing adjusted costs in 2020 to €19.5 billion.
Provisions for credit losses are expected to increase to around 20 bps of loans in 2020 reflecting a continued normalization of credit and lower recoveries.
Medium-Term Target (2022-end)
For the group, post-tax return on tangible equity (RoTE) of 8% is targeted by 2022, given external headwinds, including interest-rate movements in the euro area. Notably, various measures have been implemented by the bank to nullify the impact of lower interest rates to a greater extent. Loan growth, passing through negative interest rates, further optimization of liquidity reserves and using deposit tiering arrangements initiated by the European Central Bank advantageously are some of the measures.
For the Core Bank, excluding the Capital Release Unit, Deutsche Bank anticipates post-tax RoTE target of above 9% in 2022. Cost income ratio of 70% is expected.
Per management anticipations, the interest-rate environment is likely to affect the returns in the Private Bank and Corporate Bank in the mid-term, partly offset by revenue growth in the Investment Bank and Corporate & Other.
The company aims to reduce adjusted costs to €17 billion by 2022.
CET 1 capital ratio is anticipated to be maintained at 12.5%. Also, leverage ratio is likely to be about 5%.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
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