Deutsche Bank’s shares drop after 15-quarter profit streak snapped

Deutsche Bank’s Q2 2024 earnings report revealed a significant setback, marking the end of a 15-quarter profit streak.

Germany’s largest lender reported a net loss of €143 million, primarily due to a €1.3 billion provision for an ongoing lawsuit related to its acquisition of Postbank. This litigation charge overshadowed the bank’s operational performance, leading to an 8% drop in its share price.

CFO James von Moltke emphasised the bank’s focus on building excess capital for the remainder of the year. “While this may be a little bit worse than we anticipated, the total level of provisions was still not dramatic,” Von Moltke told CNBC.

Investment banking: a silver lining

Despite the overall loss, Deutsche Bank’s investment banking division showed promising results. Revenues from advising companies on deals and raising new debt and equity surged to €585 million, up from €291 million a year earlier.

This 88% increase in origination and advisory revenue outpaced gains at major U.S. competitors, indicating the bank’s successful efforts to reboot its corporate finance advisory business.

Pre-tax profits in the investment bank rose by 25% to €746 million, although this fell short of analysts’ expectations. “Our operating strength is evident,” CEO Christian Sewing reassured, highlighting the bank’s resilience in a challenging market.

Earnings report: a mixed bag

Deutsche Bank has halted its share buyback plans for the year but continues to aim for a total payout of €8 billion through dividends and buybacks between 2021 and 2025. The lender also raised its provision for credit losses to €476 million, reflecting a cautious outlook on the commercial property market.

CFO von Moltke noted, “The recovery in commercial real estate has been slower than anticipated.”

The bank’s common equity tier one ratio, a key measure of financial stability, improved slightly to 13.5%. Analysts from RBC Capital Markets and KBW acknowledged the underlying strength of Deutsche Bank’s results, despite the legal provisions.

As the bank navigates a weak German economy and ongoing legal challenges, it remains focused on cost-cutting measures and strategic adjustments to enhance future performance.

“We see several positive drivers for the second half,” von Moltke added, pointing to stable net interest income and momentum in corporate finance.

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