Deutsche Bank smashes profit expectations in fourth quarter as higher interest rates bolster revenue

Finance

A statue is pictured next to the logo of Germany’s Deutsche Bank in Frankfurt, Germany, September 30, 2016.
Kai Pfaffenbach | Reuter

Deutsche Bank on Thursday reported its 10th straight quarter of profit, receiving a boost from higher interest rates and favorable market conditions.

Deutsche Bank reported a 1.8 billion euro ($1.98 billion) net profit attributable to shareholders for the fourth quarter, bringing its annual net income for 2022 to 5 billion euros, a 159% increase from the previous year.

The German lender almost doubled a consensus estimate among analysts polled by Reuters of 910.93 million euro net profit for the fourth quarter, and exceeded a projection of 4.29 billion euros on the year.

In 2019, Deutsche Bank launched a sweeping restructuring plan to reduce costs and improve profitability, which involved exiting its global equities sales and trading operations, scaling back its investment banking and slashing around 18,000 jobs by the end of 2022.

The annual result marks a significant improvement from the 1.9 billion euros reported in 2021, and CEO Christian Sewing said the the bank had been “successfully transformed” over the last three and a half years.

“By refocusing our business around core strengths we have become significantly more profitable, better balanced and more cost-efficient. In 2022, we demonstrated this by delivering our best results for fifteen years,” Sewing said in a statement Thursday.

“Thanks to disciplined execution of our strategy, we have been able to support our clients through highly challenging conditions, proving our resilience with strong risk discipline and sound capital management.”

Post-tax return on average tangible shareholders’ equity (RoTE), a key metric identified in Sewing’s transformation efforts, was 9.4% for the full year, up from 3.8% in 2021.

Deutsche also recommended a shareholder dividend of 30 cents per share, up from 20 cents per share in 2021, but did not announce a share buyback at this stage.

“On the share repurchases, given the uncertainty of the environment today that we see, also some regulatory changes that we’d like to see both the timing and the extent of, we’re holding back for now. We think that’s the prudent action to take, but we intend to revisit that,” CFO James von Moltke told CNBC on Thursday.

He added that the bank would likely reassess the outlook in the second half of this year, and reaffirmed Deutsche’s target for 8 billion euros in capital distributions to shareholders through to the year 2025.

Here are the other quarterly highlights:

  • Loan loss provisions stood at 351 million euros, compared to 254 million euros in the fourth quarter of 2021.
  • Common equity tier 1 (CET1) ratio — a measure of bank solvency — came in at 13.4%, compared to 13.2% at the end of the previous year.
  • Total net revenue was 6.3 billion euros, up 7% from 5.9 billion euros for the same period in 2021 but slightly below consensus estimates, bringing the annual total to 27.2 billion euros in 2022.

Deutsche’s corporate banking unit posted a 39% growth in net interest income, aided by “higher interest rates, strong operating performance, business growth and favorable FX movements.”

Some of the tailwinds were offset by a slump in dealmaking that has affected the wider industry in recent months.

“The fourth quarter tailed off a little bit for us in November and December, but still was a record quarter in our FIC (fixed income and currencies) business for a fourth quarter, 8.9 billion [euros] for the full-year,” the CFO von Moltke told CNBC’s Annettee Weisbach.

“We’re thrilled with that performance but…it came a little bit short of analyst expectations and our guidance late in the year.”

He said that January had been a month of strong performance for the bank’s trading divisions, as market volatility persisted.

“That gives us some encouragement that our general view, which was that volatility and conditions in the macro businesses would taper off over time, but would be replaced if you like from a revenue perspective with increasing activity in micro areas like credit, M&A, equity and also debt issuance,” he said.

“We see that still intact as a thesis of what ’23 will look like.”

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