German Bank Wednesday crushed market expectations for the third quarter amid rising interest rates and market turbulence.
The bank reported net profit of 1.115 billion euros ($1.11 billion) for the quarter. Analysts had predicted a net profit of 827 million euros, according to Refinitiv data.
“We are seeing the interest rate advantages come through in our corporate banking and our private banking, basically those with large deposit books and we are seeing our FIC [fixed income and currencies] companies are handling this environment extremely well,” James von Moltke, chief financial officer of Deutsche Bank, told CNBC’s Joumanna Bercetche.
CEO Christian Sewing said in a statement that the bank was “on track” to meet its 2022 targets. Over the medium term, the bank said it aims to achieve returns on average tangible equity in excess of 10 % by 2025.
Here are some other highlights from the quarter:
- Revenues increased by 15% compared to a year ago and reached 6.92 billion euros.
- The Common Equity Tier 1 ratio, a measure of bank solvency, stood at 13.3% from 13% a year ago.
Deutsch Bank reported third quarter earnings.
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Looking at the bank’s individual divisions, investment banking revenue was up 6% from a year ago. In particular, revenues from Fixed Income and Currencies increased by 38% over the same period and helped offset the decline in performance from Credit Trading.
Against this backdrop, the bank said origination and advisory revenue fell 85% year-over-year, indicating a drop in transactions, as has been the case with some of its US peers. .
Corporate banking, however, saw the biggest revenue increase of any division, up 25% from a year ago.
Deutsche Bank also said it further reduced its exposure to Russian credit over the same period. The bank severed its ties with Russia following Moscow’s unprovoked invasion of Ukraine. As a result, additional contingent risk fell to €0.2 billion from €0.6 billion at the end of the second quarter.
Higher interest rates for longer?
The German bank recorded higher provisions compared to the same quarter a year ago. These amounted to 350 million euros at the end of the third quarter, against 117 million euros at the same date last year.
The bank said this reflected “more difficult macroeconomic forecasts”. Speaking to CNBC, von Moltke reiterated his expectation of a recession in 2023 in Germany and the wider European market.
Despite the weak growth forecast, Deutsche Bank believes the European Central Bank will continue to raise rates. Currently, the main ECB interest rate is at 0.75%.
“We think terminal rates have now started to converge towards our view and it would probably be more like 3% for the ECB and 5% maybe 5.5%… for the Fed. I think that’s important because the main thing is to get inflation under control and so we fully support central bank actions,” von Moltke said.
Deutsche Bank shares 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.