Pre-tax profit at Deutsche Bank’s investment banking business almost halved at the end of last year as the division was hit by declining trading revenues, rising costs and higher provisions for bad loans.
The lender said on Thursday that the investment bank, which generated nearly two-fifths of the group’s full-year revenue, had a pre-tax profit of € 319 million in the fourth quarter, down from € 599 million a year earlier. Analysts expected a profit of € 407 million from the unit.
Between October and December, fixed income and foreign exchange trading revenues were 14 percent lower than a year ago as the pandemic-driven trading frenzy in capital markets eased. At the same time, the division’s payroll costs increased by 30 percent, pushing up total costs by more than a quarter. Loan loss provisions have doubled.
James von Moltke, chief financial officer, was optimistic and told analysts that last year’s performance “strengthens our confidence in continued business momentum, which significantly exceeds our previous revenue ambitions for 2022”.
Shares in Deutsche Bank rose more than 3 percent in early Frankfurt trading on Thursday.
KM Abouhossein, an analyst at JPMorgan, urged investors to “look ahead, not in the rearview mirror” as the German borrower’s “future is heading in the right direction with 2022 targets being maintained”. He also praised his budgetary discipline, pointing out that last year’s accounts were blurred by transformation costs that will fall away in 2022.
“[Deutsche] is actually a rare cost-cutting story when large international banks announce ongoing cost inflation, ”he said.
Overall, the bank’s full-year profit quadrupled to € 2.5 billion in 2021, reaching its highest level since 2011. The return on equity rose to 3.4 percent, but was below the bank’s 2022 target of at least 8 percent.
Deutsche said on Wednesday it would resume dividend payments worth € 400 million this year. It will also buy back € 300m worth of shares, representing just over 1 percent of its market capitalization. Christian Sewing, CEO, set aside the dividend in 2019 when he radical restructuring plan it will cost the bank almost € 9 billion in restructuring expenses by 2022.
“We are delighted to resume capital distributions to our shareholders as we promised in the summer of 2019,” Sewing said in a statement, adding that the repurchase of shares and the dividend were the first steps towards fulfilling its promise. to return € 5 billion to investors.
Deutsche’s core level one-share ratio, a critical indicator of balance sheet strength, fell by 0.4 percentage points to 13.2 percent of risk-weighted assets at the end of the year.