Deutsche Bank’s earnings plummeted by half in the 1st quarter. Details of a strategic overhaul to be unveiled as hefty legal charges dampen gains in investment banking revenue.
Deutsche Bank (XETRA: DBK) reported a first quarter earnings drop of 50 percent. This was more than expected as souring legal fees eroded investment banking revenue gains, while details of a strategic overhaul are prepared to be unveiled on Monday.
Compared to a year ago, net profits for the second quarter dropped to 559 million euros ($608 million). This drop came despite an increase of 24% in revenue attributed to a rise in client trading activity.
Group revenue went up to a near record of 10.4 billion euros with almost 50 percent coming from the investment bank. Despite this, Deutsche Bank’s pre-tax contribution plummeted more than a half thanks to litigation and regulatory costs as well as currency swings, as reported by the bank on Sunday.
The company has thus far managed to position itself as the “last man standing” in Europe’s investment banking despite cutting specific business lines. Looking at the quarterly revenue figures, this strategy showed benefits. That is, the banks debt trading business contributions saw an increase of 9% compared to last year and a further 31% growth in its small yet growing equities trading business.
Meanwhile, investors are in anticipation for Monday when the bank is expected to unveil further details pertaining to the strategic plans announced on Friday which include plans to sell its Postbank (XETRA: DPB) retail chain coupled with additional cutting back in investment banking.
After the Swiss National Bank got rid of a cap on the franc (CHF), bigger trading banks like Deutsche received a fee income boost in the 1st quarter while at the same time, the European Central Bank reported its quantitative easing program while the US Federal Reserve implemented steps to further tighten up on monetary policy.
Meanwhile, Goldman Sacks (NYSE: GS) reported a 41% net profit increase for the quarter, while rivaling bank Morgan Stanley (NYSE: MS) reported a 60% net profit increase. Interesting to note is that since the financial crisis in 2008, this has been Morgan Stanley’s most profitable quarter.
Deciding to cut down on their trading desk are European rivals Barclays (LON: BARC) and UBS (NYSE: UBS), while Deutsche has rather chosen to keep its dealing divisions. Trading revenue in the previous quarter has already increased 20%, beating declines at Morgan Stanley and Goldman Sachs.
Impacting on the banks bottom line was the $2.5 billion legal settlement for the alleged rate-rigging incident and another 1.5 billion euro fee to strengthen the legal reserves of the bank. Deutsche Bank increased contingent liabilities to 3.2 billion euro, stating that now for the first time it was able to estimate costs associated to certain risks.
The retail franchise at Deutsche Bank will shrink with plans to dispose of Postbank, seeing a 1% increase in revenue on the year and compared to other operating divisions, this was a much slower growth rate.
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