A sign for Deutsche Bank AG at a bank branch in the financial district of Frankfurt, Germany, on Thursday, Feb. 2, 2023.
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Germany’s largest lender Deutsche Bank on Tuesday posted higher-than-expected first-quarter profit on robust investment banking performance, but upped credit provisions as lenders in Europe’s largest economy navigate turbulence amid U.S. tariff policies.
Net profit attributable to shareholders reached 1.775 billion euros ($2.019 billion) in the first quarter, up 39% year-on-year and above analyst expectations of around 1.64 billion euros, according to a Reuters poll. The bank reported profit of 106 million euros for the December quarter.
Revenues reached 8.524 billion euros over the period, up 10% year-on-year and above a $7.224-billion-euro result in the fourth quarter.
In a statement accompanying the results, Deutsche Bank CEO Christian Sewing said the print “put us on track for delivery on all our 2025 targets” and marked “our best quarterly profit for fourteen years.”
The lender’s shares were up 2.5% at 08:11 a.m. London time, shortly after the market open.
Other fourth-quarter highlights included:
- Profit before tax of 2.837 billion euros, up 39% year-on-year.
- CET 1 capital ratio, a measure of bank solvency, was 13.8%, unchanged from the fourth quarter.
- Post-tax return on tangible equity (ROTE) rate of 11.9%, against a 10% target for 2025.
- Provision for credit losses was 471 million euros, versus 420 million euros in the fourth quarter, as the bank flagged “overlays relating to uncertainties in the geopolitical and macro-economic outlook in the U.S. together with first-quarter macro-economic and portfolio effects and model changes.”
The lender’s core investment banking division posted a 10% year-on-year hike in net revenues to 3.4 billion euros in the first quarter, with a 17% increase in the traditionally strong fixed income and currencies (FIC) unit partially offset by a 8% decline in origination & advisory.
Asset management net revenues picked up by 18% to 730 million euros in the first quarter.
Deutsche Bank has relied on its investment arm to bridge diminishing gains from loans as interest rates moved lower. The lender’s investment banking operations, the backbone of its growth, expanded by an annual 30% to 2.4 billion euros in the fourth quarter, also increasing 15% year-on-year to 10.6 billion euros across the whole of 2024.
“We see momentum across the businesses, and we think that’ll carry through for the rest of the year. We’re also maintaining expense discipline, and so we beat on both of those lines,” Deutsche Bank Chief Financial Officer James von Moltke told CNBC’s Annette Weisbach on Tuesday.
“Overall a solid set of results, but perhaps not as strong as at first glance,” Citi analysts said in a note, flagging “core divisional trends are more mixed” and that the lender’s provision guidance “now includes a caveat for economic uncertainty.”
Policy impact
German banks stand to benefit as the country’s political environment settles under the potential stewardship of a centrist coalition led by the Christian Democratic Union’s Friedrich Merz, after upheaval in late 2024 culminated in snap elections earlier this year.
Berlin has since signed off on reforming its landmark debt fiscal policy with an eye for higher defense expenditure, waving in expectations of bolstered regional investment and giving a boost to German equities.
“We’re obviously dealing with a lot of uncertainty on the policy side of the minutes, but we also have some certainty, for example, on net interest income,” Von Moltke told CNBC, adding Deutsche Bank had hedged “almost all” of its interest rate risk for 2025, leaving it confident in the upcoming performance of its private bank unit.
“We see the momentum there to be strong. We also think that [the] corporate bank will… will pick up momentum as the year goes by and some of the policy changes, particularly in Germany, on the fiscal side, and that’s feeding into confidence flow through,” he said.
“In Germany, equity markets are actually getting stronger, so, underpinning the belief and faith of investors again more in the German and European economy and the incoming government and the policies they have laid out,” Deutsche Bank Americas CEO Stefan Simon had said in a Bloomberg TV interview last week. He noted that European competitiveness must be “strengthened” amid a broader wake-up call for the continent that is currently grappling with a potential trade war under U.S. President Donald Trump.
Under the White House’s latest protectionist measures, the European Union has been slapped with tariffs of 20%, although these are currently reduced to 10% until July 9 to pave the path for additional trade negotiations.
“It’s fair to say that the U.S. and the Americas is one of the primary regions for Deutsche Bank, especially in growth expectations,” Simon said, adding that the bank sees growth potential in credit trading, rates and the M&A side of corporate finance.
Speaking the CNBC back in January, von Moltke had estimated that the lender’s operations in the U.S. accounted for roughly 20% of its business at the time, stressing that its operations in the region still had space to “deliver and crystallize in the future.”
On Tuesday, the CFO acknowledged current uncertainty in financial markets as a result of the U.S. tariff policies, which has benefitted the lender’s FIC trading operations — while seeping into its credit provisions guidance.
“On the credit loss provisions, we actually came in close to guidance,” he said with respect to the bank’s non-performing exposures. “What we did, though, was put on some overlays to reflect the unusual environment that we’re in and really anticipate potential sort of drift of the macro-economic variables. We think that’s prudent and appropriate, but where we land for the year will depend very much on the macro direction.”