Deutsche Bank keeps shrinking as investment bank earnings slump

The headquarters of Germany's Deutsche Bank in Frankfurt. Earnings at the investment bank declined 16 per cent from a year ago, driven by a 18 per cent slump in trading revenue and a 12 per cent drop in global transaction banking.
The headquarters of Germany's Deutsche Bank in Frankfurt. Earnings at the investment bank declined 16 per cent from a year ago, driven by a 18 per cent slump in trading revenue and a 12 per cent drop in global transaction banking.PHOTO: REUTERS

FRANKFURT (BLOOMBERG) - Deutsche Bank just keeps shrinking.

Europe's largest investment bank on Thursday (July 27) reported a 10 per cent decline in second-quarter revenue to €6.62 billion (S$10.53 billion). Analysts had expected €7.1 billion for the top line, according to six estimates compiled by Bloomberg. Income from fixed-income trading fell 12 per cent and equities revenue declined 28 per cent.

"Revenues were not as universally strong as we would have liked, in large measure because of muted client activity in many of the capital markets," chief executive officer John Cryan said in a statement. Deutsche Bank said it expects revenues of its operating businesses to decline this year as market volatility and client activity are likely to "remain muted".

Mr Cryan, who in March announced the bank's third turnaround plan in as many years, is trying to restore growth by pivoting the investment bank to corporate clients and emphasising Deutsche Bank's German roots. The lender last year posted the weakest revenue since 2010 as clients fled amid concern the bank may struggle to pay misconduct fines. Mr Cryan this year raised €8 billion to try and put those worries to rest.

Mr Arjun Bowry, an analyst with Bloomberg Intelligence, said: "Now that its capital issues have been resolved, Deutsche Bank's key challenge is to regain ground on its US peers within fixed-income trading.

"Wealth and asset management, where they seem to be getting some traction back, is also a focus."

Earnings at the investment bank declined 16 per cent from a year ago, driven by a 18 per cent slump in trading revenue and a 12 per cent drop in global transaction banking. Mr Cryan merged advisory and trading into one division in the March reorganisation as he sought to win more business from corporate clients.

Its net income of €447 million beat the €311 million estimate of six analysts surveyed by Bloomberg, benefiting from lower legal costs for past misdeeds.

Deutsche Bank shares have gained 7.8 per cent this year, compared with a 12 per cent gain in the Bloomberg Europe 500 Banks and Financial Services Index. The stock has rebounded about 76 per cent from a record low in September, when speculation about its capital position peaked.

Mr Cryan scaled back the debt-trading business since taking over as co-CEO in 2015, and has made efforts to improve controls and compliance after losses and misconduct fines. But problems with the bank's risk management practices resurfaced last month when its traders were on course to lose as much as US$60 million (S$81.4 million) in a wrong-way derivatives bet on inflation.

The bank is aiming to cut about 9,000 jobs over the coming years as part of an earlier restructuring plan, though it has recently started to fill some staffing holes, particularly in its corporate finance franchise and its wealth management unit.

The CEO in March also discarded previous plans to sell the bank's retail subsidiary Postbank after failing to find a buyer. The unit is now being integrated, with the aim to create the biggest retail bank in the notoriously overbanked German retail market.

Under Mr Cryan, the bank ended major legal cases, including a US$7.2 billion settlement in December with the United States Justice Department of a probe into the bank's handling of toxic mortgage securities before 2008. This month, Deutsche Bank and JPMorgan Chase & Co agreed to pay a combined US$148 million to resolve claims that they conspired to manipulate the benchmark yen Libor rate.

Several other cases are still pending for the German lender, most importantly a US probe into its role in helping clients move about US$10 billion out of Russia in so-called mirror trades. The bank is also facing pressure in the US to disclose details about more than US$300 million in loans it made to President Donald Trump for real estate projects.