Deutsche Bank Surprises Investors With Estimate-Busting Profit

Posted July 16, 2018 6:46 p.m. EDT
Updated July 16, 2018 6:48 p.m. EDT

LONDON — Deutsche Bank’s chief executive, Christian Sewing, has only been in the job since April. But he has already delivered something the lender has lacked recently: some good news.

Deutsche Bank, Germany’s biggest lender, surprised investors Monday when it announced that it expected to report about 400 million euros, or around $467 million, in profit for its second quarter. That is more than double the 159 million euros that analysts had been expecting.

Shares in the bank were up nearly 7 percent in afternoon trading in Europe, at 10.28 euros.

The earnings preview — mandated by German financial rules because of the gap between estimates and reality — suggested a promising start for Sewing, who has been given the task of turning around the embattled bank’s fortunes after his predecessors spent years trying and largely failing. Whether his strategy of deep cost cuts and a retreat from the global stage can succeed in the long run remains to be seen.

Once a firm with ambitions to go toe-to-toe with Wall Street giants, Deutsche Bank instead has been forced to shrink itself after three years of losses, even as its U.S. rivals have rebounded from the 2008 financial crisis. Long known as the most aggressive of the European banks, the lender has grappled with an array of problems: a bloated investment bank and trading desk, outdated computer systems, and costly legal settlements tied to matters like its sale of toxic mortgage securities.

Such is the state of Deutsche Bank’s operations that its U.S. arm failed a stress test conducted by the Federal Reserve, having been found with “material weaknesses” in its operations.

Those troubles have led to significant management turnover — Sewing is Deutsche Bank’s fourth chief executive or co-chief executive in four years — and questions about how the lender can right itself. The bank’s current plan includes cutting more than 7,000 jobs by the end of 2019.

Revenue held up as well, according to the announcement Monday, with the bank expecting to report 6.6 billion euros in sales for the quarter, above the 6.4 billion euros that analysts had forecast. But that included money from an asset sale and an accounting gain tied to the value of Deutsche Bank’s debt, revenue sources that are unlikely to be available going forward. Expenses were also 200 million euros better than expected, some of which came from 1,700 job cuts during the second quarter.

The bank’s sales and trading revenues for the quarter are expected to have fallen 15 percent from the same time last year. By comparison, JPMorgan Chase & Co.'s trading revenues rose 13 percent for the quarter from the same period a year ago, while Bank of America Corp.'s rose by 7 percent. Citigroup Inc.'s fell by just 1 percent.

Deutsche Bank is scheduled to release its full earnings July 25.