Deutsche Bank Expects Increased Profits and Shareholder Returns

Shares in Deutsche Bank experienced a significant surge on Wednesday following the announcement that the German financier plans to capitalize on the heightened volatility in global markets. The bank aims to achieve this by utilizing an additional €3 billion ($3.173 billion) worth of capital that it expects to free up by 2025.

During an investor presentation, Deutsche Bank's CFO, James von Moltke, highlighted the anticipated growth in their advisory business. He emphasized that corporate clients are increasingly seeking the bank's guidance in navigating the current "geopolitical" and "economic" landscape.

Von Moltke further underscored the bank's success in securing incremental deals, noting a remarkable 40% increase in their corporate division's wins during the first nine months of 2023. This accomplishment has ignited confidence in utilizing the prevailing "momentum" surrounding the surging demand for advisory services.

As a result of these positive developments, shares in Germany's largest lender soared by 6% on Wednesday, adding to the 10% gain experienced over the previous 12 months.

Deutsche Bank's third-quarter results align closely with analysts' expectations, with revenues reaching €7.1 billion. This represents a noteworthy 2.9% increase compared to the previous year's third-quarter performance.

The bank's revenues were primarily driven by a remarkable 21% uptick in its corporate banking division, which generated €1.9 billion, and a modest 3% increase in income from its private banking division, amounting to €2.3 billion. These divisions benefited from higher interest rates as well as an influx of new corporate and retail clients.

Furthermore, the strong performance of these two pillars compensated for declining revenues in the investment banking (-4%) and asset management (-10%) segments. These declines were noticeable when compared to the exceptional third-quarter results achieved in 2022.

Deutsche Bank Reports Profit Increase Despite Lower Post-Tax Profits

The Frankfurt-headquartered company, Deutsche Bank, has announced a 7% increase in pre-tax profits to €1.7 billion for the third quarter, marking its highest pre-tax profit in 17 years. However, post-tax profits have fallen by 3% to €1.2 billion, which the bank attributes to a higher tax rate.

Capital Reserves and Staff Cuts

Looking ahead, Deutsche Bank anticipates freeing up €3 billion of additional capital by 2025. This will be made possible through staff cuts and a lesser-than-expected impact from Basel III regulations, which dictate the amount of capital reserves international lenders must hold. The reduced regulatory impact means that the bank will only need to hold €10-15 billion in reserves, significantly less than its previous forecast of €25-30 billion.

Streamlining and Shareholder Returns

In line with its plans for further streamlining, Deutsche Bank closed 93 branches during the first nine months of 2023. CEO Christian Sewing stated that a "significant proportion" of the freed-up capital will be returned to shareholders. The exact proportion has yet to be determined, as CFO James von Moltke mentioned that the firm still owes shareholders an answer on this matter. It is possible that a portion of the capital will also be reinvested in the business.

Share Buybacks and Dividends

Deutsche Bank is on track to return €1.75 billion to shareholders through share buybacks and dividends over the course of 2022-2023. Additionally, the bank has signaled its intention to launch another share buyback scheme in 2024.

Despite the decline in post-tax profits, Deutsche Bank remains optimistic about its financial outlook, with plans for capital allocation and continued shareholder returns.