Deutsche Bank posts unexpected Q3 profit, hikes legal provisions

The Deutsche Bank AG logo sits on the German lenders office building in Frankfurt, Germany.
The Deutsche Bank AG logo sits on the German lenders office building in Frankfurt, Germany.PHOTO: BLOOMBERG

FRANKFURT (REUTERS) - Deutsche Bank posted an unexpected net profit of 278 million euros (S$422.2 million) in the third quarter after a record loss in the year-earlier period as it benefited from a surge in bond trading that boosted all Wall Street banks' earnings.

"We continued to make good progress on restructuring the bank. However, in the past several weeks these positive developments were overshadowed by the attention around our negotiations concerning the Residential Mortgage Backed Securities matter in the United States. This had an unsettling effect," chief executive John Cryan said in a statement on Thursday (Oct 27).

Deutsche Bank shares rose 3.6 per cent in pre-market trading at brokerage Lang & Schwarz, while Germany's blue-chip index was seen down 0.4 per cent.

Deutsche Bank hiked the amount of money it has set aside to cover the legal bill for its numerous missteps of the past. Litigation reserves rose to 5.9 billion from 5.5 billion euros at the end of June.

Deutsche Bank is fighting a US$14 billion demand from the US Department of Justice (DoJ) over the misselling of mortgage-backed securities in the run-up to the financial crisis.

"Discussions with the DOJ to resolve its investigation of Deutsche Bank's pre-financial crisis RMBS business are ongoing," Deutsche Bank said in a presentation. It gave no information on when it expects to settle the case.

Revenues were up slightly at 7.5 billion euros in the quarter, ahead analysts' expectations, mainly driven by Deutsche's trading activities, while business declined in all other operating businesses mainly due to the effects of the low interest-rate environment.

Deutsche Bank's cash cow bond trading division, which has volatile revenues and tough capital requirements to meet, was up 14 per cent in the quarter, driven by Britain's surprise vote to leave the European Union and bouts of anxiety about monetary policy around the world.

Compared to its peers, Deutsche Bank's bond trading activities however showed a subdued rebound, in part related to its decision to trim the unit.

In equities trading, Deutsche Bank saw revenues decline in the quarter as low stock markets volatility gave investors less reason to trade, while revenues from corporate and investment banking fell by 1 per cent due to weaker M&A fees and capital markets activity.