In the good old days, at least from the point of view of bankers and shareholders, when credit institutions were still paying millions in bonuses and dividends, they were considered the rainmakers: the investment bankers. They were the “rainmakers” who let a warm rain of money fall on themselves, but also on the bench – and already treated the Rolling Stones to their Christmas party. Those days are over, shareholders in particular have been looking down the pipe at Deutsche Bank for some time. But now it is precisely the scolded investment bankers who, in the midst of the expensive corporate restructuring and the corona pandemic, are making Deutsche Bank dream of an annual profit.
Confidence that it would be in the black this year, contrary to earlier forecasts, increased after the third quarter, the bank itself said at a telephone press conference early on Wednesday morning. This confidence is spurred on by the business figures for the third quarter, which are unexpectedly robust for the market. In the third quarter, the largest German bank generated a pre-tax profit of EUR 482 million. This is not only significantly more than the analyst consensus expected. In the same quarter of the previous year there was even a big minus of EUR 687 million. After taxes, the bank reports a profit of 309 million euros, a year ago the net loss was 832 million euros in the third quarter.
Deutsche Bank share gains
Profitability has also improved significantly, with the so-called cost-income ratio falling by 3.6 percentage points to 87.3 percent. This means that only 87.3 percent of the income is consumed by costs. The jump in profits came as a surprise to investors, as analysts had forecast an average loss of 26 million. The share went against the market trend and was quoted 3.4 percent higher at 8.10 euros at noon.
Deutsche Bank share
The significant jump in profit would not have been possible without investment banking. According to the information, this division generated net EUR 957 million, exceeding analyst expectations by more than 70 percent. In the same quarter of the previous year, the investment bankers earned only 64 million euros. Deutsche Bank itself also spoke of an “extremely strong environment for earnings in investment banking”. One of the profit drivers was the issuing business – as in the two previous quarters – because many companies are currently sucking up on liquidity. Investment banking also benefited from the fluctuating markets. If they are volatile, there is more trading and investment bankers collecting more transaction fees. Trading in bonds and currencies alone increased its income by almost half.
Internal bath bath tarnishes the result
For Deutsche Bank, however, there is a high risk in the reliance on investment banking that has re-established. If the capital markets calm down and if the financial requirements of companies fall in the course of normalization of the economic situation, then income in this segment will also shrink. And ultimately, investment banking doesn’t shine as much as the reported figures suggest. Because the high profit contrasts with high losses of the internal bad bank: 427 million euros in losses ran here in the third quarter. According to the bank, this capital release unit handles a large part of bad investment banking assets. If investment banking had to account for this itself, its business would shine far less – and the bonuses would probably also be lower.
And the bank as a whole would not shine as much without the profits from investment banking as it does with its figures for the first nine months of the Corona year 2020. At 189 million euros, the corporate bank even earned less than in the same quarter of the previous year and slightly missed analyst expectations. And the private customer bank, which earned 121 million euros a year ago, even made a loss of 4 million euros between July and September.
Even if Deutsche Bank can realize its dream of black numbers for the year as a whole, there is a question mark behind its profit prospects in the long term. The bank will only be able to be profitable as long as investment banking can offset the weakness in private and corporate banking.
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