The Banking and Strategy Initiative

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European Bank Results Season: Deutsche Bank maintains Profits, revenues in gruff quarter (Q3 2011, $9.85bln revenues, $1.2 bln profits)

Despite losses of $300 mln on Greek bonds, mainly in he PCAM division, the bank overturned last years loss into a low ball but a clean profit. The bank can also claim to have fully hedged its credit with a DVA of EUR 170mln or $220 mln compared to profits of $2 bln on average posted by the Big 4 and other large banks in the USA

The losses on the Greek debt have been booked at a markdown to 46% allowing a little more loss as and when the settlement is made this month. The bank had reported a stronger Q2 and even stronger Q1 with Q2 revenues of EUR 4.8 bln ($6.3bln) in CIB and incl pat Post Bank EUR 3.5 bln ($4.6bln) in PCAM and a Pre Tax Profit of almost EUR 1.9 bln led by EUR 1.2 bln of $1.6 bln from CIB business

The Q3 profits also came in despite a German VAT claim of almost half a billion dollars, deepening its internal crisis in CIB as CIB profits fell to EUR 329 mln from EUR 1.1 bln in the year ago quarter. Postbank contributed to profits on the PCAM side with Non Interest Expenses of EUR 755 mln netting against its EUR 1 bln revenues and helped shore up the profit and revenues.

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Deutsche Bank has improved its core Tier I capital to above 10% in Q2 itself while improving “stable funding” to 55% of its entire $1.6 tln in liabilities this quarter . Its nine months EBIT for the bank is EUR 5 bln compared to a Eur 10 bln target for 2011 which it backed out at the height of Greek negotiations. The bank remains most affected by the upcoming Basel 2.5 and Basel 3 restrictions incl a EUR 9 bln infusion required to take Tier I common to 9% if required. Market Capitalisation has fallen below $40 bln from $60 bln last year

The bank added EUR 1 bln to revenues from Postbank to post revenues of EUR 7.3 bln despite a 29% fall in trading revenue to EUR 3.5 bln ($4.55 bln).

The bank has also emphasised profits in its Global Transaction Banking team this quarter as it gets leverage in trade Finance and Corp Treasury products
Non Interest expenses in the Corporate Bank shot to almost 90% of net revenues even as Transaction Banking brought home almost an equal amount as the division’s profit, after Non interest expenses in the division as the bank leads in Cash management for the USD EUR business
The bank is unlikely to spring back in a hurry but has claims on a leadership status

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outside the sphere of HSBC, JP Morgan or Goldman Sachs but its core constituency in Europe continues in a decline

The bank reports a continuing decline in Comp ratios but with peculiar culture and heavy recruiting at others expense in 2009 it is stil stubborn at 37% Non Comp expenses for the bank are a higher 44% this quarter just for the new provisions for Greek debt and at Postbank (netted by released provisions)
The bank has always hoped for a pan European brand and could have easily absorbed a European player like UBS in better times with its cash. Its absorption of BT in the US astill leaves it with a large gap in US Corporate Banking revenues as well

The bank’s Cost income ratio was a bad 70.4% till last quarter worsening to 73.7% with a 81% CI ratio for Q3

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Deutsche Bank reported an EPS of EUR 0.75 or more than a $1 per share on diluted equity with a Net Profit of EUR  777 mln or $1.05 bln at USD EUR of 1.35


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