the German bank On Wednesday, market expectations for the third quarter were crushed, amid higher interest rates and turbulent market trading.
The bank reported net income of 1.115 billion euros ($1.11 billion) for the quarter. Analysts had forecast a net profit of 827 million euros, according to data from Refinitiv.
“We are seeing the benefits of interest rates come through in our corporate bank and private bank, mainly those with large deposit books, and we are seeing our FIC [fixed income and currencies] companies that manage this environment extremely well,” James von Moltke, chief financial officer at Deutsche Bank, told CNBC’s Joumanna Bercetche.
Chief executive Christian Sewing said in a statement that the bank is “well on track” to meet its 2022 targets. In the medium term, the bank said it aims to achieve a return on average tangible equity of over 10% by 2025.
Here are other highlights for the quarter:
- Revenue rose 15% from a year ago, reaching 6.92 billion euros.
- The core capital ratio, a measure of the banks’ solvency, was 13.3% from 13% a year ago.
Deutsch Bank reported results for the third quarter.
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Looking at the bank’s individual divisions, investment banking revenue was up 6% from a year ago. In particular, income in interest and currency increased by 38% in the same period and helped offset lower performance in credit trading.
Within this context, the bank said its Origination and Advisory revenues fell by 85% year-on-year, pointing to lower deal-making – as has been the case with some of its US peers.
However, Corporate Banking saw the biggest jump in revenue among all divisions, up 25% from a year ago.
Deutsche Bank also said it had further reduced its exposure to Russian credit over the same period. The bank has cut ties with Russia in the wake of Moscow’s unprovoked invasion of Ukraine. As a result, further contingent risk fell to 0.2 billion euros, from 0.6 billion euros at the end of the second quarter.
Higher interest rates for longer?
The German bank reported higher provisions compared to the same quarter a year ago. These came in at 350 million euros at the end of the third quarter, compared to 117 million euros at this time last year.
The bank said these reflected a “more challenging macroeconomic forecast.” Speaking to CNBC, von Moltke reiterated the expectation of a recession in 2023 in Germany and the wider European market.
Despite the poor growth expectations, Deutsche Bank believes that the European Central Bank will continue to raise interest rates. Currently the ECB’s main interest rate is 0.75%.
“We think terminal rates have now started to converge towards our view and it will probably be more like 3% for the ECB and 5% maybe 5.5% … for the Fed. I think that’s important because the critical thing is to get the inflation under control, and therefore we fully support the central bank’s actions,” von Moltke said.
Shares in Deutsche Bank are down around 17% so far this year. The German lender beat expectations in the second quarter with a profit of 1.046 billion euros.