By Tom Sims, Matthias Inverardi and Emma-Victoria Farr
FRANKFURT (Reuters) - Deutsche Bank has raised its forecast for bad loans against the backdrop of a weak German economy, as the bank returned to profit in the third quarter, boosted by investment banking and a cut in reserves for Postbank lawsuits.
This marked the second time in the last few months that Germany's largest bank has increased its bad-debt provision forecasts. The bank's shares were 3% lower by midmorning.
"It feels the difficult German economic environment has started to impact Deutsche Bank revenues," JPMorgan said in a note.
The International Monetary Fund has just warned that the German economy is expected to stagnate this year, contrasting with expectations for growth in all the other G7 countries.
Deutsche's 15-quarter profit streak was interrupted in the second quarter after the bank made a large provision for the Postbank lawsuits. Deutsche has since settled some of the cases and cut provisions by 440 million euros ($475 million), helping to boost profit.
The bank also said it was applying for a share buyback, a move that was on hold because of its Postbank issues.
Deutsche bank revised up its credit loss provision forecast to 38 basis points of loans in 2024, up from previous guidance of slightly above 30 basis points. That would put full-year provisions at around 1.8 billion euros, up from 1.5 billion last year, finance chief James von Moltke said.
Von Moltke told journalists integration problems at Postbank were behind part of the increase in provisions because those issues had affected the bank's ability to chase delinquent borrowers.
RBC said the increase in loan-loss provisions was a disappointment but "a reflection of the environment rather than company specific".
Net profit attributable to shareholders came in at 1.461 billion euros in the quarter, 42% more than a year earlier and in line with expectations. It logged a loss of 143 million euros in the second quarter.
The Postbank lawsuits - which have been moving through the courts for years - claim that the bank underpaid in its Postbank acquisition.
The purchase of the no-frills lender with its millions of clients and roots in the country's postal system began during the global financial crisis and aimed to broaden Deutsche's reach in Germany while gaining a steady income stream.
Deutsche said in April that although it strongly disputed the claims, it had decided to post a 1.3 billion euro provision for the cases.
Some of those lawsuits have been settled, but some are outstanding. A Cologne court on Wednesday ruled against Deutsche Bank in favour of some of the investors. Deutsche said it would analyse the ruling but that it considers itself essentially fully protected from any financial hit.
Deutsche's star performer in the quarter was its investment bank, where revenues rose 11% from a year earlier, above expectations for gains of 6.5% and echoing a strong third quarter at rivals like JPMorgan and Goldman Sachs.
But revenues at Deutsche's other two big divisions were lacklustre.
Revenue at the retail division, which includes Postbank, was flat, in line with expectations. At the corporate bank, revenue fell 3%, when analysts had expected a gain of just under 1%.
Both divisions had benefited from higher interest rates, gains that will ease as the European Central Bank cuts interest rates.
Within the investment bank, revenue for fixed-income and currency trading, one of the bank's largest businesses, rose 11%, better than expectations for a 4.6% gain.
Origination and advisory had a strong quarter, with revenue rising 24%, compared with expectations for a 19% increase.
Deutsche Bank is one of several big European banks reporting results this week and next. The sector is expected to show continued profitability, with robust investment banking activity offsetting a squeeze on margins and weak loan demand.
Italy's UniCredit's has put the focus back on M&A in European banking with its push for a possible tie-up with Deutsche Bank's rival, Commerzbank (ETR:CBKG), prompting speculation that Deutsche may join the fray.
But Deutsche officials have played down such ideas, saying they are focused on their own strategy.
Deutsche has more work to do "before we jump in the ring," von Moltke said.
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