Deutsche Bank’s share price (LON:0H7D) had a good day yesterday, closing 3% higher, though after this morning’s Q2 numbers that gain has been given back.
There were few surprises in this morning’s from Germany’s biggest bank, as it reported a bigger loss than had been guided earlier this month. The €3.2bn quarterly loss was considerably higher than what was expected to be announced in the wake of this months announced big job losses, though this could be merely as a result of bringing forward the costs of the planned 18,000 job losses being planned. The bank has already given notice to 900 people since the announcement first broke at the beginning of this month.
The performance of the asset management division was a bright spot, which is encouraging given that’s where management want to focus their attention going forward as part of the new business plan, but that was a silver lining on what was a pretty disappointing set of numbers. Keeping hold of this division will be key in the success of being able to turn the business around over the next few years.
In another area the bank is looking to focus its attention on going forward, namely advising on M&A and bond and stock sales, here we saw a decline of 30%, and that should worry management if they want to instil confidence in their turnaround plan. Revenues were down 6% across the banks Global and Transaction banking unit more broadly and it is clear that further work needs to be done in this area.
Revenues were down across the board, with the investment bank underperforming again. The equities business saw a 32% decline, which helps explain why the bank is looking to get rid of it.
The bank also said it expects impairments to come in at €600m and also expects to add to the fines and legal settlements that the bank has had to settle over the last 11 years.
Even without the various charges and set asides the bank underperformed expectations, with net income for the quarter coming in at €231m, while pre-tax profit came in at €441m, compared to €771m a year ago.
The outlook also looks murky with management saying that they expected revenues to be considerably lower over the course of the next 12 months, though this should be expected as they exit a variety of underperforming businesses.
Management also expressed concern, in line with similar comments from UBS yesterday, about the negative impacts of a the low rate environment, and the prospect that even lower rates might hamper the bank further.
In summary this update had little to cheer about and this morning’s poor European economic data is unlikely to offer much cheer to Deutsche Bank’s senior management given that it makes a prolonged low and even more negative rate environment that much more likely, thus increasing the revenue pressure on a bank that is more exposed than most.
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