Deutsche Bank (DB) Reports Q2 Loss As Revenues Decrease

Marred by significant restructuring costs, Deutsche Bank (DE:DBKGn) (NYSE:DB) reported second-quarter 2019 net loss of €3.15 billion ($3.54 billion) against net income of €401 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €946 million ($1.06 billion).

Second-quarter results were affected by rise in expenses. Lower revenues and higher provisions were other undermining factors. However, strong capital position and net inflows were tailwinds.

Excluding strategic transformation charges of €3.4 billion ($3.82 billion), Deutsche Bank reported net income of €231 million ($259.69 million).

Revenues Decline, Expenses and Provisions Rise

The bank generated net revenues of €6.2 billion ($7 billion), down 6% year over year. Lower revenues across most of the segments, primarily due to implementation of strategic measures and a challenging market environment, led to this downside.

Net revenues at the Corporate & Investment Banking (“CIB”) division of €2.94 billion ($3.31 billion) declined 18% from the year-ago quarter. Lower revenues in Sales & Trading (Fixed Income and Equity) along with Origination & Advisory revenues led to the fall.

The Private & Commercial Bank segment’s net revenues totaled €2.5 billion ($2.8 billion), down 2% year over year. Lower revenues from business outside Germany and global wealth management unit resulted in the decline.

Asset Management segment generated net revenues of €593 million ($667 million), up 6% year over year, mainly due to higher performance fees. Notably, the company reported net new money inflows of €4 billion ($4.5 billion) during the quarter.

Net revenues at Corporate & Other unit came in at €182 million ($204.6 million) for the quarter against negative net revenues of €91 million a year ago.

Provision for credit losses increased 70% from the year-ago quarter to €161 million ($181 million). The rise resulted largely from higher provisions in the CIB unit as the bank prepares itself against forecasted weaker macroeconomic conditions.

Non-interest expenses of €7 billion ($7.9 billion) were up 21% from the prior-year quarter. Excluding restructuring-related charges, the bank reported adjusted costs of €5.7 billion ($6.4 billion), up 2%.

Deutsche Bank’s Common Equity Tier 1 capital ratio (fully loaded) came in at 13.4% as of Jun 30, 2019, compared with 13.7% as of Jun 30, 2018. Leverage ratio, on an adjusted fully-loaded basis, was 3.9%, down from 4% in the prior-year quarter. Risk-weighted assets declined €1 billion in the June-ended quarter to €347 billion ($390 million).

Our Viewpoint

Deutsche Bank’s second-quarter results were largely affected by the costs related to its major overhaul. Also, persistent rise in provisions and lower revenues were key headwinds. Nevertheless, capital position remained decent.

Deutsche Bank’s restructuring efforts aimed to boost revenues and drive improvement across all the business segments look encouraging. However, it is really difficult to determine how much the bank will gain, considering the lingering headwinds. Moreover, dismal revenue performance is a concern.

Deutsche Bank Aktiengesellschaft Price, Consensus and EPS Surprise

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

UBS Group AG (NYSE:UBS) reported second-quarter 2019 net profit attributable to shareholders of $1.39 billion, up nearly 1% from the prior-year quarter. Notably, the company’s performance reflects lower expenses. Also, results were supported by rise in net fee and commission income (up 1% year over year), partially offset by lower net interest income (down 15%).

Among other foreign banks, Itau Unibanco Holding S.A. (NYSE:ITUB) will release June-ended quarter numbers on Jul 29. Mitsubishi UFJ Financial Group (NYSE:MUFG) will report results on Aug 1.

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