Germany’s largest bank, Deutsche Bank, has reported a significant jump in profits, surprising investors and leading to questions about the self-confidence of the institute.
Deutsche Bank has been unimpressed by the current economic situation, thanks to rising interest rates and stable lending. The bank has achieved its highest quarterly profit in 15 years, with 1.2 billion euros after taxes in the three months to the end of September. This is far more than observers had expected.
The surprisingly strong result was mainly due to a factor over which the institute has no influence: the rising key interest rates on both sides of the Atlantic are helping to earn more again in the classic lending business. Compared to the previous quarter, net interest income rose by nine percent, compared to the same period last year by almost a third. Business with private and, above all, business with corporate customers contributed to this. In fact, despite the gloomy economy, the bank even granted more loans.
The bank may even exceed its year-to-date revenue target. In contrast, results in investment banking were mixed. In booming fixed income and currency trading, the bank grew earnings significantly and significantly more than its US Wall Street peers. In the business of takeovers and mergers, IPOs and bond issues, there was hardly anything left to do given the upheavals on the world stock exchanges: income in this segment collapsed by 85 percent compared to the same quarter last year.
Nevertheless, the Management Board is not lacking in self-confidence in view of such strong group results. Sewing even indicated that it might be able to exceed the earnings target of 26 to 27 billion euros for this year – but at the same time the bank is also facing greater “cost pressure”.
CFO James von Moltke described the year 2022 as a “milestone for Deutsche Bank”, but held back with predictions about future business development. It is still too early to give a concrete outlook for 2023, he said. The bank wants to build on the results of the current year, but the prospects are “very uncertain”.
With all the warnings about the uncertain situation, what is particularly striking is the calmness with which those responsible for the group talk about the economic prospects. If you look at Germany’s largest money house as an economic seismograph, the situation currently seems to be less bad than expected. This can be seen in the provisions for loan defaults, which rose to 350 million euros in Deutsche Bank’s balance sheet. While that’s three times the previous figure, it’s in line with what analysts were expecting. For 2023, von Moltke expects risk provisions to be higher again, albeit within a manageable range.
Moltke was annoyed by the discussions about a special loan program by the European Central Bank, with which the monetary authorities wanted to boost lending in the Corona crisis. According to estimates, the banks in the euro zone could expect around 40 billion euros in risk-free additional income by parking excess liquidity from the loan program back at the central bank. The central bankers are currently discussing capping this additional income.
Deutsche Bank’s self-confidence is admirable in the face of such turbulence, however it remains to be seen how sustainable this will be in the coming year.
