ii view: Deutsche Bank moves into annual profit

Germany’s biggest lender is back in the black. We assess prospects. 

Fourth-quarter results to 31 December

• Quarterly net revenue up 2% to €5.5 billion
• Quarterly profit attributable to shareholders of €51 million, up from a loss of €1.6 billion
• Full-year 2020 profit of €113 million, up from a loss of €5.7 billion in 2019
• Quarterly costs down 21% to €5 billion
• Credit loss provisions of €251 million

Chief executive Christian Sewing said: 

“In the most important year of our transformation, we were able to more than offset transformation-related effects and elevated credit provisions – despite the global pandemic. With profit before tax of a billion euros, we’re ahead of our own expectations. We have built firm foundations for sustainable profitability, and are confident that this overall positive trend will continue in 2021, despite these challenging times.”

ii round-up:

German banking giant Deutsche Bank (XETRA:DBK) reported a surprise fourth-quarter profit of €51 million in these latest results, adding to previous progress and generating its first full-year profit in several years. 

Net revenues gained by 2% compared with 13% in the prior quarter, but cost savings escalated to 20% over the previous year quarter compared to 10% in the third quarter. 

Deutsche Banks shares moved between marginal gains and losses following the results. Although are up by around 5% over the last year compared to a one-fifth decline at America's Citigroup (NYSE:C) and a near one-third fall for Asia-focused HSBC (LSE:HSBA). 

Deutsche's profit for 2020 came in at €113 million, up from a loss of €5.7 billion in 2019. Across the bank for the final quarter, a near one-quarter gain in revenues for its investment bank helped offset falls everywhere else. Like US rivals, ongoing pandemic uncertainty helped fuel trading gains for the division.  

In July 2019, Deutsche announced plans to pull out of global equities sales and trading, scale back investment banking and slash thousands of jobs as part of a sweeping restructuring plan to improve profitability. The Investment Bank reported profit before tax of €3.2 billion for the full year 2020 compared to €502 million in 2019.

Group credit provisions, and likely allowing for the ongoing pandemic, rose by 2% to €251 million. Assets under management for its fund manager business rose by 3% or €25 billion over the year to €793 billion, likely aided by further central bank action to combat the pandemic. 

ii view:

Deutsche Bank provides retail and private banking, corporate and transaction banking, lending, asset and wealth management products and services as well as focused investment banking to a range of customers from private individuals to governments. 

In the aftermath of the 2008 financial crisis, US banks in particular were quick to strengthen balance sheets, restructure and assess prospects across businesses. For Deutsche, true appraisal of its position happened far more recently. It wasn't that long ago that it outlined a strategy to become a simpler, more efficient, less risky and better capitalised bank.

For investors, evidence of progress under its transformation plan continues to surface. These latest numbers mark its 12th consecutive quarter of cost reduction. But as with rivals, gains for its reduced investment bank under volatile Covid conditions cannot be guaranteed going forward. The bearing down on costs is also likely to have removed much of the low-hanging fruit. In all, and with its shares now sat above the current analyst consensus target price (€7.87), Deutsche shares may be up with events for now. 

Positives

• Management action to transform and refocus its operations is being pursued
• A return to profit

Negatives

• The bank is moving to become less diverse
• Cuts in interest rates are broadly considered bad for banks

The average rating of stock market analysts:

Sell